The property insurance market in hurricane-prone Louisiana faces escalating challenges due to rising premiums and the expenses of claims following severe weather events, according to analysts at Moody’s Ratings.
Moody’s recent report highlights Louisiana’s vulnerability to destructive storms, prompting insurers to exit the market. Consequently, premiums in the state rank highest nationwide relative to average income, placing a growing financial burden on residents.
The departure of insurers has left homeowners facing significant premium hikes or struggling to secure coverage from the private market. Many have turned to Louisiana Citizens Property Insurance Corp, the state-run insurer of last resort, which charges higher premiums.
Simultaneously, a new federal pricing model for flood insurance is driving up costs for homeowners in high-risk areas, resulting in a decline in flood coverage policies.
Moody’s cautions that “Unaffordable property insurance or the inability to obtain it holds the prospect of fewer potential homebuyers.”
A decrease in homebuyers could lower property values, thereby affecting tax revenue for local governments.
This market slowdown could compound existing challenges for local governments, including a projected decline in new home starts and single-family home sales in the coming decades.
“Additionally, increasing risks of damage from extreme weather can drive up costs to build infrastructure intended to lessen storm damage,” analysts add.
Furthermore, if higher insurance costs result in a significant number of uninsured homeowners, states and local governments may confront prolonged recovery periods after storms. Private insurance, federal aid, and government liquidity are pivotal for reconstruction efforts.
The state’s insurance commissioner has introduced several initiatives to address turbulence in the insurance market, including the Insure Louisiana Incentive Program and the Louisiana Fortify Homes Program. Additionally, efforts to strengthen building codes, promote competition among insurers and reduce insurance market litigation are underway.
“Ultimately, the effect of these programs in mitigating escalating insurance costs is high. However, success hinges heavily on the frequency and intensity of storms,” Moody’s concludes.
