To reduce home insurance premiums, Louisiana looks to Alabama

A decade ago, Alabama officials were grappling with rising property insurance premiums, mounting losses and insurers pulling out of the market. So officials there cooked up a novel idea: subsidize stronger roofs.

After a few years of testing various programs, Alabama in 2017 started handing out grants of up to $10,000 to homeowners to install roofs that would better survive hurricanes. The idea was straightforward: roofs are typically the most expensive insured loss after a storm. And when the roof fails, damage often spreads to the interior of the house.

If more people built them to higher standards, then, insurance losses would go down. Premiums would come down. And, perhaps, more companies would be willing to enter the market.

The results – a broader rush to build stronger and promising drops signs in premiums – have piqued the interest of a host of states looking to tamp down rising insurance costs, at a time when climate change is driving turmoil in the marketplace. The big draw of the program is lower insurance premiums: Insurers in Alabama are required to offer a discount on property insurance if a homeowner has a so-called fortified roof.

Louisiana launched its copycat program this year, and has selected 3,000 applicants to receive $10,000 grants. Several other states are contemplating similar programs.

Commissioner of Insurance Jim Donelon, who is stepping down in January after 17 years leading the agency, hailed the program as a lifeline.

"I think this is the long-term answer to our problems in coastal Louisiana," Donelon said. "For that matter, coastal Atlantic, from Massachusetts to Miami and around to Mexico."

Louisiana and other states with high risk for insurers have tried various ways to bring costs down. Louisiana recently started doling out $55 million in tax incentives directly to insurance companies entering the market. Florida passed laws limiting lawsuits against insurers.

But the fortified grant program addresses the larger problem in a more direct way, by trying to reduce risk of living near the coast.

'It's really simple'

Brian Powell, who runs the Alabama Department of Insurance's program, said the state realized it had to do something after seeing insurers pull out of the market for several years. He said bolstering homes before storms hit was the only way to "change the economics."

The results have encouraged regulators in several states. While Alabama's grant program has subsidized new roofs to a relatively small number of people – 6,500, about 80% of which live in the state's two coastal counties – it has sparked a much broader push to build stronger homes.

In all, the Insurance Institute for Business & Home Safety, which runs the Fortified program that Alabama uses as a standard, has certified roughly 56,000 buildings with Fortified designations across the country. The vast majority – about 44,000 – are in Alabama, according to IBHS spokesperson Cliff Barros. North Carolina has 8,000 and Louisiana and Mississippi have just under 1,000 each.

The numbers suggest the indirect effects of Alabama's program have been bigger than the direct ones: There are about seven fortified roofs in Alabama for every grant the state has given out.

Alabama requires insurers to give people a roughly 25% to 30% minimum discount on property insurance in exchange for their fortified roof if the homeowner is in a coastal area. Louisiana doesn't have a minimum requirement, but Donelon said that based on the filings he's seen so far, insurers here are offering about the same discount as in Alabama.

Powell said Alabama has given out $64 million in grants since the program's inception. For a couple years, residents were beating down the doors because the agency didn't have enough money to give out.

"The purpose of this program was to change the way people thought about building homes and re-roofing their homes," he said. "The grant program will not ever have enough money to fortify all homes in Alabama."

The program isn't tailored to low-income people; recipients typically pay between $2,000 to $4,000 out of pocket to cover certifications and costs above the $10,000 grant, Powell said. But the Alabama department has partnered with nonprofits to try to help low-income residents be able to afford to participate.

Data is limited on the performance of the roofs and premium costs, but there are encouraging signs.

Baldwin County, one of two coastal counties in Alabama, saw rising premiums in the 2000s and 2010s, according to state data. Since the grant program launched, in 2017, the county has seen modest declines each year. The town of Fairhope, Alabama, which is in Baldwin, has added fortified requirements to its building codes.

Data compiled by Lars Powell, director of the Center for Insurance Information and Research at the University of Alabama, shows the two coastal counties have seen premiums shrink by a meaningful amount as the number of fortified homes climbed to over 35,000. The average premium in those counties as of 2021 was about $1,200, about $200 cheaper than a decade earlier.

"This is the solution for homeowners insurance on the coast," Powell said. "It's really simple. Build a house that doesn't get blown down by a hurricane. We shouldn't put one more (standard roof) on the coast."

Alabama has the advantage of having only two counties directly on the coast, with a combined population of more than 600,000. Louisiana has a much larger coastal population, with about half of the state's 4.6 million residents living near the coast.

Slowly but surely

Retired St. Tammany Parish sheriff's deputy Alicia Craige, 57, was one of the first people in Louisiana to complete the process of getting a new fortified roof. A longtime New Orleans-area resident, she's been living in her Slidell home for 13 years. But a few years ago, her insurance premium started rising, and like many Louisianans, she wound up on Citizens, the state's insurer of last resort. This year, her Citizens premium made an alarming jump: from $1,800 to $3,200.

"It was a lot," Craige said. "Because it had been going up every year. When it went up to $1,800 last year, I was a little bit upset. When I saw it was going up to $3,200 this year…I understand that's a fraction of what some people have to pay. But for me, that's a lot."

After winning one of the coveted grants, she swiftly rounded up quotes and hired a contractor, who put on the new roof for $9,800, all of which was covered by the grant. Craige said she had to come out of pocket for only $500 for the certification.

The same day she received her certificate for the new roof, in November, she shopped around and found a new policy with SageSure, a regional insurer with many policies in coastal areas. The policy is about $1,500 less than her Citizens policy, she said.

The grant program has moved slowly, with only 13 completed roofs so far. Donelon said his office is in the process of vetting several thousand applicants selected. Before the money is released to them, homeowners have to show a homestead exemption on the property and round up qualified bids from contractors, among other things.

The program has drawn immense attention. John Ford, a spokesperson for the department, said nearly 11,000 people registered to seek grants. Of those, 3,000 ultimately were selected.

Nails, tape, glue

Building a fortified roof is not as complex as one might think.

Three relatively minor changes make a fortified roof distinct. The changes boost the cost of a typical roof by about $1,000 to $1,500, according to Fred Malik, head of Fortified at IBHS.

The first component is using a different type of nail – a ring shank – when nailing the plywood sheathing down. The rings in the nails increase the strength of the connection, making them more like screws. They add about $50 to the roof's cost.

The second is sealing the roof underneath the shingles, so that even if a few come off, water doesn't leak into the house. That amounts to basically taping up the wood surface on the roof.

The third is bolstering the roof's edges, where wind does the most damage, mostly by gluing the first layer of shingles down.

Malik said fortified standards are a key part of adapting to climate change. Hurricanes are intensifying more quickly and hammering places further inland with more wind and rain.

"What options do we have at this point in time?" he said. "Our best, most readily available strategy is to adapt."

The Legislature appropriated $30 million for the program. That's only enough to fund about 3,000 grants, half of which were for homeowners on Citizens, the insurer of last resort.

Whether the program stays alive in the future is up to incoming Insurance Commissioner Tim Temple, a Republican aligned with the insurance industry, and the Republican-dominated Legislature. Temple has remained noncommittal about supporting the program, but Donelon said he urged him to continue it by using millions in excess funds generated by the insurance department through fees.

Donelon said the agency sends about $10 million a year in excess funds to the state general fund, but could keep that money to continue funding grants.

Temple's spokesperson didn't return messages seeking comment.