Not such a happy new year if you were a property owner in the Bayou State. Property insurance rates throughout Louisiana are skyrocketing. In New Orleans, the state run insurance company now charges as much as an 83% increase. Headlines in national publications blurted out: LOUISIANA INSURANCE MARKET IS COLLAPSING!
The Louisiana insurance commissioner’s efforts to pour state funds into the coffers of insurance companies was shut down by the legislature just this past week. And for good reason. There was no specific plan offered to lawmakers besides “Just give us more money to spend.” Over in Florida, a state that has similar problems in finding affordable homeowner’s insurance for its citizens, legislators grabbed the bull by the horns and came up with a number of solid changes. One change was to demand that the insurance commissioner in Florida resign, which he promptly did.
A number of smaller insurance companies were allowed by the Louisiana Insurance Department to begin operating in the state without proper back up funding. When dealing with risky insurance coverage, it’s imperative that insurance companies buy protection called reinsurance. So if a company gets into financial trouble, there is a backup plan to turn to. But many of the smaller companies selling property insurance in Louisiana did not have this proper back up. They should never have been allowed to come into the state to begin with.
NBC news did an exposé on the Louisiana crisis quoting critics as saying many companies failed to buy enough reinsurance and that the state Department of Insurance should have prevented those mistakes from happening.
“This is not a fluke of statistical bad luck. This was very clearly a political decision that the Department of Insurance made to undercapitalized insurance companies to allow them to make more profit on the front end and with the state taking the risk on the back end,” said Jesse Keenan, a real estate professor at Tulane University who studies climate change and the economy. “This is about politics. This is about trying to keep the rates lower. This is about the political pressure to lower the rates.”
While Louisiana stands by and twiddles its thumbs on any insurance reform efforts, Florida has taken the opposite approach. Here was a typical headline in newspapers all across the sunshine state last week. “FLORIDA ENACTS SWEEPING PROPERTY INSURANCE REFORM”. Florida directly addressed the reinsurance problem by creating the Florida Optional Reinsurance Assistance Program (FORA). FORA will be administered by the State Board of Administration. It permits eligible insurers to purchase reinsurance coverage under this new plan.
Let me tell you why reinsurance is so important. When an insurance company has sold too many policies that might jeopardize their financial standing, they buy insurance just like you and I do. The insurance company goes to a “wholesaler” or a reinsurer to cover a portion of their losses. Kind of like the bookie laying off part of his bet. The insurance company gives up a portion of the premium to buy their own insurance coverage in case the losses potentially get too high. Because of recent so many storms, reinsurance has become quite expensive. That’s why the Florida governor and legislature stepped in.
The new Florida law, strongly supported by Governor DeSantis, doesn’t come cheap. The state created and funded a one-billion-dollar reinsurance fund. So can Louisiana afford to do the same thing? It simply comes down to a matter of priorities. The Louisiana legislature, in this coming year, will have a surplus over last year of $1.5 billion. Just how important is affordable property insurance to legislators who are hearing massive pleas from their constituents?
In the past year and a half, Louisiana has lost 67,508 residents who left the State. Many of those who moved on cite the high cost of insurance as their reason for leaving. If the legislature does not find a solution to the lack of reinsurance, this out migration will continue. The outrageous cost of property insurance should be a top concern for the lawmakers in the coming legislative session.
Jim Brown’s syndicated column appears each week in numerous newspapers throughout the nation and on
websites worldwide. You can read all his past columns and see continuing updates at www.jimbrownusa.com.