Louisiana insurance incentive brings new policies, but concerns remain as market struggles

Only about 1.5% of the new policies are in the northern part of the state.

But the program, championed by outgoing Insurance Commissioner Jim Donelon, has not brought dramatic change to the market. Policies written by the eight companies participating are still expensive, averaging more than $3,000 a year – not much less than the average Citizens policy rate of $3,600. And while they have taken some policies away from Louisiana Citizens, the state's insurer of last resort, Citizens' rolls are still at their highest level since 2008.

Still, proponents say the program is helping bring options for south Louisiana residents at a time when many private insurers have stopped writing policies, and they hope it will serve as a bridge to a more stable market as other efforts to right the ship move forward. Lawmakers have set aside $55 million for the program, money that's destined for insurance companies that write policies for five years.

Participating insurers get $1 from the state for every $4 in premium they write, as long as they keep the policies for five years.

Insurers participating in the Insure Louisiana Incentive Program have written a total of about 32,000 policies through August at an average cost of $3,050 a year, according to data from the Louisiana Department of Insurance.

The costs vary widely by parish. Nearly half of the policies are in the New Orleans metro area, with an average premium of $3,679. Plaquemines Parish had the highest prices, at an average of $4,627. Orleans Parish was second at about $4,400.

The incentive policies are heavily concentrated in parishes along the coast, from Cameron to Plaquemines, where insurance rates have skyrocketed.

The insurers have written premiums that total more than half of the amount required to land all the grant money available. If insurers hope to tap all of the free money, they'll need to nearly double their underwriting; the Insurance Department is also preparing a second round of grant applications.

But questions remain about whether they can maintain the policies over time, a requirement to keep all the money. It's also not clear how many policies the companies might have written without the grant money. While a primary goal of the program was to get people out of failing firms and off Citizens' rolls, more than half of the new policies written were for people who were neither insured by Citizens nor United Property & Casualty, which pulled out of the state amid financial problems last year.

That means that in many cases the state is paying insurers to undercut other companies. Donelon's office believes that's a good thing, saying competition will eventually lower rates.

"We're really happy with it," said Insurance Department spokesperson John Ford. "We're optimistic that, starting this month, people will start to see more options in the market. After we get past hurricane season, companies should start to loosen up and write more policies."

About 27% of the policies written under the program so far are for people who were most recently on Citizens. Another 18% were policyholders of UPC, which means they were likely destined for Citizens.

For 55% of the new policies, the policyholder was either uninsured, has a new home or had insurance from another private carrier.

"To me, that's a win because many of our agents for a long time have been reporting that no one is really writing business," said Ben Albright, vice president of the Independent Insurance Agents and Brokers of Louisiana. "This is new business being written."

"This is an incentive program to jumpstart growth, not a long-term fix," Albright added. "I'm hopeful four years from now the market is in a better space."

In the first iteration of the program, after Hurricanes Katrina and Rita, Donelon's agency wasn't able to give away even a third of the money that the Legislature set aside. Three of five participating insurers then failed to write enough policies to keep their cut and had to give back $4.4 million. Last year, one of those companies went belly-up; it was one of 11 Louisiana insurers to fail in the last two years.

It's too soon to say whether the new iteration of the program will face similar struggles. But the companies taking part are mostly small insurers. Six of them don't have a rating from the gold standard in ratings agencies, AM Best, something that has raised concerns among some lawmakers and experts. Most of the Louisiana companies that have failed have lacked an AM Best rating, and instead relied on another firm, Demotech.

Amy Bach, executive director of the consumer advocacy group United Policyholders, said there are key questions about the companies participating, including whether they have the financial strength to weather a catastrophe. She said it might make more sense for the state to deliver aid directly to policyholders.

"Fundamentally this concept has been a little odd to me -- the idea of paying private companies to help them make money," she said. "If you've got this kind of money to give away, why don't you give it to people to help them afford premiums?"

Many advocates believe that, in order for the state to see dramatic improvements in the insurance market, it will need to address the fact that south Louisiana has too much risk, especially as climate change drives more intense weather. The state has taken steps to do so with a grant program to help people put fortified roofs on their homes and to update building codes, but it will take years to reap significant rewards. And incoming Insurance Commissioner Tim Temple has signaled he may not support additional funding for the roofing program, which only has enough money to improve 3,000 roofs.

State Rep. Mike Huval, a Breaux Bridge Republican who chaired the House Insurance Committee during the past term, said the incentive program and fortified roof grants are a good start, and that he'd give the incentive program a "B" grade.

He said while he does have concerns about the participating companies' financial strength, he thinks the Insurance Department will be able to ensure they are not overexposed.

"I really feel that if we can have another good year (with storms) we'll start seeing the companies being more competitive," Huval said.

Even with the benefit of the incentive policies, Citizens hasn't shed a significant number of policies, despite the lack of any major storms since Hurricane Ida. The increases are modest compared to the huge spikes Citizens saw following hurricanes in 2020 and 2021 and the subsequent failure of several insurers.

Citizens' rolls have swollen by 262% since Ida hit, reaching 140,000 policies in August. In 2022, it had about 4% market share, the highest in over a decade.

The huge influx of policyholders comes as Citizens experienced a massive rate hike this year, largely the result of turmoil in the reinsurance market, where insurers buy protection.