Louisiana Citizens rate increases will be as high as 111% in some parishes

The unlucky residents who rely on the state's insurer of last resort pay the most for property insurance coverage in the state.

Thanks to the hurricanes of 2020 and 2021, the prices charged by Louisiana Citizens Property Insurance Corp. are set to rise by an average of 63%. But in some parishes, the financial pain will be much more severe.

In St. John the Baptist Parish, where 2021's Hurricane Ida did massive damage, the cost of a homeowners policy will go up by an average of 111%. Similarly, in coastal Vermilion Parish, the price of coverage will jump by nearly 102%.

The average premium will be close to $5,000 or more in at least seven parishes, including Orleans and Jefferson, according to rate filing documents submitted by Louisiana Citizens.

The huge hikes, which arrive in 2023, will hit a fast-growing number of Louisianans. Though Citizens tries to avoid signing up new customers by keeping its prices artificially high, its rolls have tripled, to more than 100,000 policyholders, because more than two dozen private insurers have either gone belly-up or left the Louisiana marketplace because of the risk.

Reinsurance a cause

State officials say the dramatic jump in price is driven by the escalating cost of reinsurance — a backstop insurance policy that's needed in case of a catastrophe.

Louisiana Citizens was granted a 63% rate increase across all of its personal lines policies, which also includes coverage for condominiums, renters and fire insurance. But homeowners and wind-only policies offered under the state Fair Access to Insurance Requirements law, or FAIR Plan, make up the largest share of premiums the agency collected — about $128 million — as of August 2022.

To justify the prices it charges, Louisiana Citizens submitted its actuarial and market analysis to the state Department of Insurance. The estimated figures offer the clearest projection of how the cost of insurance coverage is expected to change.

Richard Newberry, Citizens' executive director, said reinsurers abroad that are critical to providing insurance in coastal Louisiana are looking at the region, and others, more warily.

In non-storm years, providing backstop coverage to insurers once delivered solid returns on reinsurers' investment, but not after two busy storm seasons. Couple Louisiana's experience with wildfires in California and other calamities across the globe, and now the reinsurance industry is in retreat or charging a stiff premium for its guarantees.

"Now, 89 cents of every premium dollar compared to 20 cents in 2019 is spent on reinsurance (for Citizens)," Newberry said.

Insurance Commissioner Jim Donelon recently took a trip to London, one of the global centers of the reinsurance market, to pitch reinsurers like Lloyds of London. He told state lawmakers at a recent Joint Insurance Committee hearing that he hoped to persuade them that Louisiana's market is a solid investment.

"The market for reinsurance, we anticipate, next year in the private sector will be up more than it is this year," Donelon told lawmakers.

Florida and Louisiana, both vulnerable to hurricanes, have become increasingly dependent on the same types of insurance companies — cash-poor upstarts — to keep their marketplaces afloat. Both states have suffered from a raft of storms.

But Florida has also seen its insurance market roiled by rampant litigation related to fraudulent water claims, which sets it apart from Louisiana. Everybody admits their market is in "desperate condition," Donelon said.

Donelon said he also wants to travel to Bermuda — another epicenter of the reinsurance market — to pitch Louisiana as a worthy investment, "telling our story, which is an incredible story in comparison to Florida," he said.

More next year?

The rising prices have left small and regionally focused insurers with a grim choice: gamble from one year to the next, or simply go out of business. So far, 11 companies have been declared insolvent after struggling financially. Others have chosen to leave or just quit writing policies, downsizing their homeowners business in the state.

With few willing insurers in the market, many consumers have had no choice but to turn to Louisiana Citizens, where prices, by law, must be at least 10% more than the highest premium in a parish.

This provision in state law will add as much as $400 to a typical homeowners premium, according to data in Louisiana Citizens' rate filing with the state. The intent of the policy is to ensure the state-run insurer doesn't compete with the private market.

But the rule hits consumers with another fee at a time when the market is contracting - and in some parishes, hardly exists.

Consumers who buy wind-only policies from Louisiana Citizens won't catch a break either, as the cost of coverage is expected to rise by 74%.

In Orleans and Jefferson parishes, the average policy for only wind coverage will cost nearly as much as a homeowners policy — both upwards of $4,000, data show. Some policyholders in St. Mary and Cameron parishes could find themselves paying more than $5,000 for a wind-only policy.

Donelon has pitched lawmakers a plan to steer policyholders back to private insurers and away from Louisiana Citizens. He hopes to get funding for an incentive program that would subsidize insurers to take policies out of the state-run insurer.

In his eyes, what other choice does Louisiana have?

"If we don't do it, and they're forced to stay there (with Citizens)," Donelon said, "they're going to get another 63% increase a year from now."