Our Views: Insurance crisis offers Louisiana few good options

The difficult 2020 and 2021 hurricane seasons are fading from memory, but it will take a long time for Louisiana to recover. It's not just the blue roof tarps that still dot the landscape from Lake Charles to Lafourche. The most serious aftereffect is the disruption in the precarious property insurance market, which threatens to do lasting damage to home values in our communities.

There will be no easy or painless solution, as private insurers shy away from the most vulnerable parts of Louisiana: the parishes below Interstates 10 and 12, which is where most of the people live.

It would be nice to believe there is a law we can pass, or a villain we can identify. But insurance companies are businesses, and their skittishness is understandable when Louisiana was assaulted by two of the most powerful storms ever to churn out of the Gulf of Mexico, Laura in 2020 and Ida in 2021.

The fundamental problem is one of supply and demand: There are not enough companies willing to offer homeowners' insurance in the state right now.

So the choice is stark. The state can provide the insurance itself or it can subsidize private companies to move into the market. In the end, Louisiana will — and should — probably do both.

The state operates a government-run insurer of last resort, Louisiana Citizens Property Insurance Corp., which provides coverage to homeowners shunned by the private insurance market. By law, Citizens charges rates 10% higher than the private sector, to encourage homeowners to keep looking for a private insurer.

That's sound policy, but two challenging hurricane seasons have chased many small insurers to the sidelines — often through insolvency — forcing homeowners with no private market option into the arms of Citizens. Citizens had 36,000 policyholders in 2021. Now it has more than 100,000.

To the alarm of many forced to make the jump, the carrier is seeking a 63% rate increase.

Louisiana needs Citizens to ensure that homeowners can obtain coverage somewhere, but the perils of a taxpayer-owned insurance operation were underscored in 2005 by Hurricane Katrina, still the nation's costliest natural disaster.

Citizens was at the time carrying 170,000 policies, and it had to borrow $1 billion to pay off its claims. To cover the loan, homeowners have been paying annual assessments ever since and the surcharges will continue until 2026.

The current situation is not as dire as it was in 2005, but additional government intervention may be needed to help rebuild the roster of private insurers. Jim Donelon, who took office as Insurance Commissioner in 2006, offered subsidies to lure small carriers into the state after Katrina. The technique seemed to work at the time.

But reporting by Michael Finch II and Joseph Cranney this month demonstrated that many of the post-Katrina carriers were felled by the losses they suffered in 2020 and 2021, chiefly due to Ida, which tore through the most populous part of the state.

Still, Donelon wants to revive the technique, and many legislators seem ready to go along, in part because nobody has a better solution.

But there is peril in that course as well. A state fund set up to pay claims from failed insurers is borrowing $600 million to cover losses from insolvent providers, including some of those lured to Louisiana after Katrina.

If the state inaugurates a new subsidy program, it will need to be more careful in picking carriers who participate, including perhaps using incentives to encourage established insurers to take on risk in vulnerable zip codes.

But overall, rebuilding the private market is a better course than pushing the state deeper into the homeowners' insurance business.