As Louisiana lawmakers adjourn Monday for a special session to address the state’s property insurance crisis, a commentary from AM Best says Louisiana’s plan to appropriate $45 million in funds to incentivize insurance companies to take on more property risk is likely to be a “short-term stopgap” as opposed to a long-term solution to fix reinsurance costs.
“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.
Louisiana Citizens Property Insurance Corporation, the state’s insurer of last resort, has grown policies by more than 200% from January 2021 to August 2022 after a hurricanes Laura, Delta, Zeta, and Ida wiped out several insurers. Starting in January, Citizens is increasing residential property rates by 63%.
“By depopulating its policies, Citizens can shrink its reinsurance burden, as its reinsurance is up for renewal on June 1, 2023,” according to Best’s Commentary Louisiana’s Proposed Property Market Fix a Stopgap Given Underlying Reinsurance Issues.
AM Best said the move will potentially add 8%-10% of capacity to the market.
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