Keeping a Good Thing Going
The numbers speak for themselves. After Hurricanes Katrina and Rita devastated Louisiana in 2005, more than $15 billion in private-sector insurance money flowed in to rebuild the state and its neighbors.1 In all, 933,000 dwellings, more than 75 percent of the state’s total, sustained damage serious enough to make an insurance claim. As a result of Louisiana’s claims, nearly every large property insurance and casualty insurance company in the United States sustained large annual losses.
In similar circumstances following mega-disasters, other states have seen private insurers flee. After 1995’s Northridge earthquake, many earthquake insurers left California. The storm season of 2004 brought a similar flight of homeowners’ insurers from Florida.
Louisiana, by contrast, has managed so far to retain a reasonably healthy private insurance industry. Almost five years after Katrina’s landfall, insurance has remained available—although expensive—in the state. Unlike Florida to its east and Texas to its west, Louisiana has steered a moderate, common-sense course in dealing with insurance. New carriers writing property insurance have entered the state, and even though Louisiana was the site of the nation’s largest natural disaster, premiums are actually lower than in Florida or Texas.
Even in New Orleans, where many insurers would not write policies even before Katrina, it’s possible to get several private insurance quotes for almost any higher-lying part of the city. Governors Kathleen Blanco and Bobby Jindal and Insurance Commissioner James Donelon deserve credit for this. Without leaving individuals in the lurch or forcing homeowners of modest means to go without insurance, they have implemented largely successful reforms that have brought insurers back into the state. Whereas major national insurance carriers have withdrawn or cut back in states such as Florida and Mississippi, they continue to do business in Louisiana.
Several serious problems remain, however, and elected and appointed officials throughout Louisiana should set their sights on solving them. Three stand out:
1. Louisiana Citizens Property Insurance Corporation, a state-run entity that sells insurance, is the third-largest entity of its type and did not shrink during 2009.4 Its existence and size mean a significant number of people simply cannot find private market insurance coverage. It exposes the state to billions of dollars in potential liability.
2. By many accounts, there are insufficient incentives for shrinking Louisiana Citizens. In many cases, agents and private insurers are happy to allow people to remain in Louisiana Citizens.
3. The state’s property insurance rates, averaging roughly $1,400 per year for residences, are the third highest in the United States.
The ongoing risk of major hurricanes in Louisiana and the nature of the state’s built environment mean none of these things can change radically any time soon. Although free-market principles might be served through radical steps, such as immediately abolishing Citizens, it’s not possible or practical to do so. Instead, the legislature, governor, and insurance regulators should consider several important incremental steps to help shrink Citizens, reduce the potential liabilities on Louisiana taxpayers, and make the state’s citizens safer and more secure against nature’s worst.
Based on input from consumers, the opinions of industry groups, conversations with regulators,and the examples of other states, several reform measures deserve consideration as the legislature enters its 2010 session.