Max Dorfman, Research Writer, Triple-I
Severe hurricane damage in recent years has led to large losses for Louisiana homeowners insurance underwriters and the bankruptcy of eight insurance companies.
Louisiana homeowners insurance companies had a combined ratio of 461.9 in 2021. The composite ratio shows the difference between claims and expenses paid and premiums collected by insurance companies. A composite ratio below 100 represents an underwriting profit and a ratio above 100 represents a loss.
With earned premiums of nearly $2 billion, the 461.9 composite ratio means the industry experienced an underwriting loss of $7.2 billion in 2021. As Triple-1 Chief Insurance Officer Del Porfilio says, "It will take 24 years to achieve a combined ratio of 85. Homeowners insurance writers in Louisiana will return to positive profitability.
In 2020, hurricanes Delta, Laura, and Zeta all caused major damage, resulting in large numbers of insurance claims. As of September 30, 2021, there were 323,727 insurance claims of all types for this hurricane. Insurance companies paid or reserved $9.1 billion for Laura alone. Additionally, Hurricane Ida in 2021 generated 460,709 insurance claims of all types as of June 30, 2022, with insurers paying or reserving $13.1 billion for that storm.
Eight Louisiana homeowners insurers have already gone bankrupt, and at least 12 companies have submitted withdrawal notices to the Louisiana Department of Insurance, a preliminary measure required to leave the state. This has forced thousands of homeowners to rely on the state’s last resort, Louisiana Citizens Property Insurance Corp.
The market is struggling so much that Louisiana Insurance Commissioner Jim Donnellon has called the current situation a “crisis.”
Next steps
In response, the Louisiana Insurance Guaranty Association (LIGA) has begun restructuring its handling of claims for policyholders of insolvent insurers using property estimating technology from global data analytics provider Verisk.
“Seamless coordination with independent adjusting firms has become critical as we work to help hurricane victims across Louisiana rebuild their homes and return to normalcy,” said LIGA Executive Director John Wells.
More work remains to be done
A 2020 Triple-1 Consumer Poll found that 27 percent of homeowners said they have flood insurance, a record high. However, this figure is higher than the National Flood Insurance Program (NFIP) estimate. As Triple-I notes, homeowners may not understand what flood coverage is and how it works — specifically, that flood damage is not covered under standard homeowners and renters insurance policies. Flood coverage is available as a separate policy through the National Flood Insurance Program (NFIP) administered by the Federal Emergency Management Agency (FEMA) and many private insurance companies.
As hurricanes continue to wreak havoc in vulnerable areas, homeowners and flood insurance are more important than ever. But mere risk transfer is not enough.
“Risk transfer is just one tool in the resilience toolkit,” says Triple-I CEO Sean Cavellighan. "Our understanding of harm trends and expertise in assessing and quantifying risk must be joined at the hip of technology, public policy, finance and science. We need partnerships with communities and businesses at all levels to promote a broader resilience mindset focused on pre-emptive mitigation and rapid recovery.