OLDWICK, N.J.–(BUSINESS WIRE)–AM Best is of the view that Louisiana’s plan to appropriate $45 million in funds to attract insurance companies to take on more property risk and reduce the burden on the state-run insurer of last resort is likely to be a short-term stopgap as opposed to as an effective long-term fix given ongoing reinsurance issues.
Ahead of a special legislative session in Louisiana to address its property insurance crisis, a new Best’s Commentary looks at ongoing challenges in the state’s property insurance market that are impacting availability and affordability of homeowners and commercial property coverage. According to the commentary, “Louisiana’s Proposed Property Market Fix a Stopgap Given Underlying Reinsurance Issues,” the $45 million expected to be allocated to the Insure Louisiana Incentive Fund may provide a short term benefit. However, accelerating reinsurance rates and declining reinsurance capacity, along with capital shortfalls and inadequate coverage, has translated to unaffordable prices for consumers and created availability challenges. Consequently, Louisiana Citizens Property Insurance Corporation, the state’s insurer of last resort, has grown at a dangerous pace – policies increased by more than 200% from January 2021 to August 2022.
“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, AM Best. As noted in the commentary, if Louisiana Citizens can depopulate its policies, it can reduce its reinsurance burden; its reinsurance is up for renewal on June 1, 2023.
The commentary also states that the market issues in Louisiana differ from those in