Louisiana Can Lead the Nation in Innovative Solutions to the Insurance Crisis

Increasing Disasters are Worsening the Insurance Crisis, and Louisiana Knows the Struggle All Too Well

The devastating wildfires in Los Angeles have been a stark reminder of America’s growing homeowners insurance crisis, as climate change intensifies natural disasters and insurers scramble to price the escalating risks. But here in Louisiana, where hurricanes and flooding are part of life, this crisis hits even closer to home.

Consider this: From 2000 to 2013, insurance costs made up about 7% to 8% of the typical mortgage payment. But starting around 2013, premiums began to surge. By 2022, insurance costs accounted for more than 20% of the average mortgage payment, according to data from analytics provider First Street. Yet, despite these rising costs, homeowners insurance companies have seen negative underwriting profits nearly every year from 2017 to 2023, according to a recent report from the U.S. Treasury. The report concluded that climate-related events, like hurricanes and floods, are the primary drivers of these losses.

“Climate change isn’t just a political debate anymore—it’s a reality, and insurance is one of the first places we’re feeling the pain,” said Amy Bach, executive director of the national consumer advocacy group United Policyholders. “Yes, we are in a crisis.”

In Louisiana, where hurricanes like Ida and Laura have left lasting scars, the insurance crisis is particularly acute. Coastal communities, long considered high-risk, are now seeing insurers pull out or dramatically increase premiums. But as climate risks grow, no state—or homeowner—is immune.

State Solutions to the Insurance Crisis

State lawmakers and regulators, hearing directly from constituents about skyrocketing insurance costs, are leading the charge to find solutions. Many states, including Louisiana, are experimenting with innovative ways to spread risk and rein in costs. Here are some of the strategies being explored:

1. Requiring Discounts for Mitigation Efforts

Mitigation efforts—like elevating homes, installing storm shutters, or reinforcing roofs—can make homes more resilient to natural disasters. But homeowners often struggle to get insurance companies to recognize these upgrades with lower premiums. States like Alabama, Florida and Mississippi offer mandatory insurance rate discounts for homeowners who install Fortified Roofs, with savings typically ranging from 20% to 55% off the wind portion of their insurance premiums.

In Colorado, state insurance commissioner Michael Conway was surprised to hear from homeowners who had fireproofed their homes but saw no reduction in their premiums. “Insurance companies have been telling people for years to mitigate their property if they want affordable coverage,” Conway said. “It’s unacceptable that they’re not rewarding these efforts.”

In Louisiana, where hurricane preparedness is a way of life, similar efforts could make a big difference. Mandating that insurers to offer minimum discounts for storm-proofing homes (and enforcing those mandates) could help homeowners save money while reducing risk for insurers.

2. Encouraging Insurers to Invest in Communities

Insurers have long faced criticism for investing in fossil fuel companies, which contribute to the climate crisis driving much of the damage they’re asked to cover. Some states are rethinking this dynamic by encouraging insurers to invest in the communities they serve. In Louisiana, state lawmakers provided $42 million in 2023 to bring new insurers to the state. As state residents give tax dollars to insurance companies, it is only reasonable to require that they use some of these dollars to reduce insurance risk to those residents - and reducing their loss risks at the same time.

“Imagine if insurance companies reinvested in the neighborhoods they cover, much like banks do under the Community Reinvestment Act,” said Sharon Cornelissen, director of housing for the Consumer Federation of America.

In Massachusetts, a program called the Property and Casualty Initiative (PCI) has invested $544 million since 1999 in affordable housing, health care infrastructure, and other community projects. A similar initiative in Louisiana could fund flood mitigation projects, coastal restoration, or affordable housing in hurricane-prone areas, creating a win-win for insurers and residents.

3. Don’t Suppress Premiums (and Please Don't Shoot the Messenger)

As someone who just had their 20+ year insurer pull out of Louisiana and who now finds herself on the state Citizen's Plan at a higher rate, I know how painful it is to acknowledge that we cannot force insurers to remain in our state unless we enable them to operate at a reasonable profit rather than a loss. California’s insurance market has long prohibited insurers from raising premiums to keep up with rising costs, creating an artificially suppressed market. This has led to fewer options for consumers and increased risk in high-fire areas.

Louisiana, too, must strike a balance between affordability and sustainability. Allowing insurers to use forward-looking risk models, rather than relying solely on past data, could help create a more stable market. For example, incorporating projections for stronger hurricanes or rising sea levels into pricing models could ensure insurers are better prepared for future risks. With rising rates, however, it is critical that state and local governments require minimum premium discounts for building owners who invest in reducing risk for Fortified Roofs and other smart measures. It is also critical that state and local governments look for tools to help owners pay for these upgrades, through meaningful and consistent grants, innovative financing like Property Assessed Clean Energy programs, and dedicated funding and support to lower income residents who need support to get to the finish line on building upgrades.

4. Addressing “Preexisting Conditions”

In the health insurance world, the Affordable Care Act banned insurers from denying coverage based on preexisting conditions. Amy Bach of United Policyholders suggests a similar approach for property insurance.

“In property insurance, a preexisting condition might be living in a flood zone or having an older home,” Bach said. “If we want to ensure everyone has access to coverage, we need to prevent insurers from cherry-picking the lowest-risk customers.”

For Louisiana, where many homes are in flood-prone areas, this could be a game-changer. Federal legislation to address this issue has been proposed in the past, but in today’s polarized political climate, progress may be slow.

5. Longer Wait Times for Cancellations

As insurance costs rise, more homeowners risk falling behind on payments. In some states, insurers can cancel policies just 10 days after a missed payment. Extending this grace period could give homeowners more time to catch up and avoid losing coverage.

In Louisiana, where many families are still recovering from recent hurricanes, this kind of protection could provide much-needed stability.

A Path Forward for Louisiana

Louisiana is no stranger to natural disasters, and its residents have shown remarkable resilience in the face of hurricanes, floods, and coastal erosion. But as climate change intensifies, the state must lead the way in finding innovative solutions to the insurance crisis.

From rewarding mitigation efforts to encouraging community investments, there are steps we can take to protect homeowners and ensure insurers remain viable. The stakes are high, but with collaboration and creativity, Louisiana can weather this storm—just as it has so many others.

Increasing frequency and severity of disasters are now a way of life, and it’s affecting us all. But if we work together, we can find ways to adapt and thrive in the years to come. For Louisiana, that means building a future where homeowners and insurers alike can face the challenges of a changing climate with confidence.

‍