Louisiana is waiting anxiously for signs of relief from the state’s property insurance crisis, which has continued to squeeze residents as insurers reevaluate their business at a time when catastrophes are worsening because of climate change.
The state’s insurance commissioner, Tim Temple, is confident that the changes he and other Republican leaders made earlier this year are already showing signs of working. In an interview this week, Temple said the industry-friendly changes — allowing insurers to more easily raise rates, drop policyholders and stem lawsuits — have already attracted interest from two insurers who could eventually set up shop here.
“And again, we’re two months, three months after passing these bills. So to me, that’s a good sign,” he said.
Temple said one new insurer has filed an application to start writing business here, and another CEO told him he was considering it. Temple’s office declined to name the companies or to describe them, citing confidentiality rules; the fastest-growing insurers here in recent years are smaller, lower-rated companies, while State Farm has been reducing its presence in the market.
While sounding a note of optimism, Temple also hastens to manage Louisianans’ expectations. It’s very unlikely Louisianans will return to the rates they paid before the insurance crisis, he said, and he wouldn’t be surprised if the rates simply stabilize rather than fall.
The pre-crisis cost of insurance in Louisiana was artificially low, Temple says, because many insurers were underpricing policies, whether out of sloppiness or as a means of acquiring market share. That created a “false sense of security” and ultimately helped bring about the demise of 12 insurers that went broke in 2021 and 2022.
And he cautioned that a bad hurricane season could yet set the state’s insurance market back still further. Many of the insurance companies that are most active in south Louisiana rely heavily on reinsurers, which have responded to climate change in recent years by updating climate models and raising rates. Still, he argued, the “fundamentals” are better now because of the package of new laws, including one that reshaped how claims are handled in a bid to limit litigation after a major storm.
If Temple’s package works as expected, it’s still unclear exactly where prices will land, and Temple hasn’t ventured a guess. He says he’s confident that the free market is the best hope, though he acknowledges “we do have a different type of risk in south Louisiana.”
Even as Temple holds out hope for a market solution, a growing number of researchers are publishing studies suggesting the private market may not be able to keep insurance in south Louisiana affordable over the long term.
A Tulane paper published this week suggests the market alone won’t do it, and concludes: “Unfortunately, Louisiana’s recent legislative reforms do not get to the root of the problem.”
The paper said vulnerable states like Louisiana, California, Texas and Florida cannot achieve comprehensive insurance reform without broader reforms and potentially federal intervention. And while Louisiana’s changes will allow insurers to more accurately price risk, it only works if “existing policyholders would be able to afford those premiums,” researchers Haley Gentry, Adina Weizman and James Nieset write.
“Climate risk cannot be reduced through competition. Given the magnitude of storm risks and the socioeconomic conditions in Louisiana, it is evident that homeowners and renters will not be able to keep up without additional government intervention.”
Several potential solutions have been used in other parts of the world, but making insurance affordable in risky areas will be expensive, and there’s no easy fix. The Tulane paper noted some companies are using “parametric” insurance, where companies pay out a predefined amount if a water or wind gauge measures a certain level of flooding or hurricane-force winds. The government or nonprofits could fund “microinsurance,” which is a low-premium policy designed to help low-income people.
Some European countries, the paper notes, require insurers to cover natural disasters, and they backstop the private market themselves if a catastrophe occurs.
A separate paper by researchers at the University of Pennsylvania’s Wharton School and the University of Wisconsin found that climate risks are driving insurance prices upward in Louisiana and elsewhere. The paper used a novel method of measuring insurance costs by using escrow payment data to track where costs have risen the most.
Data provided by Ben Keys, one of the authors, showed the New Orleans area has seen average premiums rise by 62% from 2020-2023, nearly double the national rate of growth.
The New Orleans area has a risk factor that is nearly four times the national average, according to the study, which used FEMA’s National Risk Index, among other sources. The paper found that for every multiple above the average in risk, a community can expect a $500 increase in premiums, meaning New Orleans should expect to pay at least $2,000 more than the rest of the country on average.
“Unless there is a big change to reinsurance markets that would dramatically reduce the cost of providing protection in very risky locations, I don’t expect those costs to come down,” Keys said in an email. “Something like a federal reinsurance backstop, for instance, could be a game-changer.”