Analysts at AM Best have warned that plans to reform Louisiana’s property insurance market are likely to only be only a “short-term stopgap” rather than an effective long-term solution to its ongoing reinsurance issues.
Lawmakers have called a special session to commence this week, during which they will consider possible ways to attract more insurance companies to the state.
In particular, the session will focus on appropriating some $45 million of funding for the Insure Louisiana Incentive Fund.
The session would follow those held in Florida last year, which saw legislators agree to billions of dollars worth of reforms and funding in an effort to relieve pressure from the beleaguered market.
However, many commentators have been sceptical of whether the reforms in Florida have gone far enough to affect meaningful change in the property market, and now AM Best has expressed similar concerns about the efforts in Louisiana.
“Although Louisiana’s incentive program represents a step in the right direction, it does not solve the reinsurance issue, because companies that choose to participate in this program also may be dependent on reinsurance, and reinsurance capacity in high-risk zones has been constrained because of increased natural catastrophe activity and outsized losses in recent years,” said David Blades, Associate Director, Industry Research and Analytics at AM Best.
AM Best does acknowledge that the $45 million expected to be allocated to the Insure Louisiana Incentive Fund may provide a short term benefit.
But offsetting this potential boost are accelerating reinsurance rates and declining reinsurance capacity, which, along with capital shortfalls and inadequate coverage, have translated to unaffordable prices for consumers and created availability challenges.
Consequently, AM Best believes taht Louisiana Citizens Property Insurance Corporation, the state’s insurer of last resort, has grown at a dangerous pace, with its policies having increased by more than 200% from January 2021 to August 2022.
That said, the rating agency also notes that if Louisiana Citizens can depopulate its policies, it can also reduce its reinsurance burden. Its reinsurance is up for renewal on June 1, 2023.
Additionally, AM Best grants that the market issues in Louisiana do differ from those in Florida, where insurance availability has become limited in large part by a lack of willingness by insurers to write within in the state due to its legal environment.
In Louisiana, by contrast, affordability issues are due to poor results over the past two years from hurricanes, other weather-related events and the rising reinsurance costs.