Hurricane Ian didn't come anywhere near Louisiana. But it could still roil our insurance market

Hurricane Ian, 2022's first killer cyclone, missed Louisiana by hundreds of miles. But the devastating Category 4 storm, which caused damages estimated in the tens of billions of dollars, could still make its presence felt here by further roiling Louisiana's balky property insurance market.

The two hurricane-prone states have many insurers in common. The result: "When Florida gets sick, Louisiana gets sick a couple of weeks later," as Martin Grace, a professor at Temple University's Fox School of Business put it.

As of 2021, records show there were 134 insurance companies with homeowner policies in Louisiana. Nine have since failed, including four based in Florida. The Louisiana storms were a key factor in some of those insolvencies.

Roughly 10 other firms have left the Louisiana market since a flurry of hurricanes that began in 2020.

Of approximately 115 insurers still in business in Louisiana, nearly 40% also hold policies in Florida, records from both states show. Those companies control about 30% of Louisiana's market, according to Louisiana Department of Insurance data.

The companies in question are mostly small regional carriers – the sort that doesn't have enormous resources to fall back on.

"The companies we're worried about here are the weak companies, not the State Farms," Grace said. "These small, relatively undercapitalized companies. They're really fine insurers if it's not storming. But they don't necessarily have the buffer to withstand a major hurricane."

Impacts inevitable

Jeff Albright, chief executive officer of Independent Insurance Agents and Brokers of Louisiana, said impacts to the local insurance market from Ian are inevitable.

"I don't think there's any doubt this will have a huge financial impact not only on the insurance companies, but on the reinsurers," or companies that provide backup insurance to insurers, he said. "This makes three years in a row that we've had a Cat 4 storm hit the [U.S] mainland. That's unheard of."

Albright predicted Ian would result not only in higher premiums down the road, but possibly more failures.

"This really stresses these small coastal homeowners' [insurance] companies," he said. "A lot of the major national companies have pulled back from coastal states. So we've opened up to these smaller companies. But they don't have the assets to deal with these big storms."

State Insurance Commissioner Jim Donelon acknowledged that Louisiana could be "significantly impacted" by the devastation in Florida, in part because Louisiana is "very dependent on these small, Florida-based regional carriers."

However, he added that Louisiana is not as dependent on those companies as Florida. He said the eight largest homeowners' insurance companies in the nation write 61% of Louisiana's policies, compared to 27% in Florida.

Signs of possible trouble

There are possible signs of trouble with a couple of Florida-based companies that have a presence in Louisiana.

A.M. Best, a global credit rating agency, on Tuesday downgraded the credit rating of Tower Hill Prime Insurance Co., prompting Tower Hill to withdraw from the company's rating program.

Tower Hill is a small, though not insignificant, player in Louisiana, holding a market share of 0.4%, according to the LDI. Its footprint in Florida is much larger: It holds nearly 75,000 homeowner policies and has exposure of more than $2 billion, according to the Florida Office of Insurance Regulation.

Then there's Safepoint Insurance Co., which earlier this year agreed to take on about 53,000 Louisiana policies from three insurance companies that failed. A.M. Best also downgraded Safepoint's rating to negative last year.

Records indicate Safepoint has a much smaller profile in Florida than Tower Hill, with total exposure of about $200 million.

Efforts to reach officials from both companies were unsuccessful Friday. But Donelon said he is concerned about Tower Hill, given the recent downgrade, though he noted that the company still has a solid rating from Demotech, another ratings firm.

Donelon was more bullish on Safepoint. He said he had recently examined the company's books and that it had $44 million in cash on hand as of mid-year.

"But all that can go out the window with a big storm," he said.

Regulatory puzzles

Donelon said that Louisiana's insurance woes are largely bad luck, owing to a run of brutal storms. Florida, he said, is suffering from a "man-made" crisis that is partly a function of wrongheaded state policies. And Florida's troubles have exacerbated Louisiana's.

Grace, the Temple professor, agreed that Florida's struggles are partly policy-related, pointing to a law that encourages third-party adjusters and often triggers lawsuits. He said the law was well-intended but has become a financial millstone for insurers, adding that Florida has roughly three-quarters of the insurance litigation in the country as a result of the law.

"Part of the reason some of these Florida companies were downgraded was because of that law," he said.

Albright said he believes Louisiana's only hope is to bring back some of the major national insurers that have left the state, which he attributes to some of Louisiana's regulations.

"When you put too many restrictions on insurance companies, it limits their desire to do business here," he said. "Given our experience and the obvious risk of hurricanes, we may need to give them more flexibility. We have to attract some significant insurance companies to spread our risk."