R Street Institute
Real Solutions

Louisiana Homeowners’ Insurance Market: More Mitigation, Less Litigation, Please

by Jerry Theodorou
May 20, 2025
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issues: Insurance, Insurance Regulation, South, State Policy, Tort Reform

Louisiana is the most unaffordable state for homeowners’ insurance. On average, Louisianans pay 3.84 percent of their family income for homeowners’ insurance—double the national average of 1.93 percent. Expensive homeowners’ insurance is the result of the state’s frequent hurricanes, compounded by family incomes 33 percent below the national average. The frequency of catastrophic storms striking Louisiana and its demographic statistics are both beyond our control; however, certain legislative measures can help make Louisiana homeowners’ insurance more affordable. This Real Solutions piece explores the unique factors shaping Louisiana’s insurance landscape, highlights some positive developments for homeowners, and offers recommendations for further improvement.

The most challenging period for Louisiana homeowners’ insurance companies was 2020-2021, when four powerful hurricanes—Laura, Delta, Zeta, and Ida—struck the state within a 12-month span. The destruction from back-to-back hurricanes caused Louisiana-focused insurance companies to pay out over $4 in insurance claims for every dollar received in premium in 2021. This followed a similarly unprofitable 2020, when homeowners paid $2.5 dollars for every dollar booked. The pronounced unprofitability was so unsustainable that it drove a dozen insurance companies into insolvency. Hurricane Ida, the strongest of the four storms, raged in 22 of the state’s 64 parishes. Sadly, losses from the 2021 hurricanes were not unprecedented—these storms have been part of Louisiana history for as far back as records have been kept.

Reinsurance

The most powerful tool insurers deploy to prevent large hurricane losses from bankrupting their firms is reinsurance—a mechanism used to spread risk. Insurers operating in catastrophe-prone states like Louisiana protect their balance sheets by purchasing adequate levels of reinsurance. They analyze the magnitude of potential loss and how much their capital can be dented in the event of outsized losses. Insurers estimate the worst that could possibly happen, retain risk up to a manageable threshold, and purchase reinsurance from the global reinsurance market to cover losses above the insurer’s retention. Even small insurance companies buy reinsurance from dozens of reinsurance companies. This spreads the risk among the world’s four reinsurance hubs—Europe, Bermuda, London, and the United States. From 2021 to 2022, Louisiana insurers paid out $23 billion in losses while collecting only $5.2 billion in premium. This happened because insurance companies shared losses with their reinsurers. Writing insurance without adequate reinsurance in a catastrophe-prone state is like driving a car with four flat tires and a half gallon of gas in the tank—little to no forward motion.

The smaller the insurer, the more reinsurance it buys. For example, Allied Trust Insurance Company, which wrote $274 million of premium in 2024 (mainly in Louisiana and Texas), reinsured 86 percent of its business to over a dozen reinsurers. Most Louisiana insurers buy adequate levels of reinsurance, but there are exceptions. The Louisiana Farm Bureau Mutual Insurance Company (LFBMIC) is one insurer that may be overexposed to individual reinsurers. The LFBMIC has reinsurance counterparty relationships with only two reinsurers: Southern Casualty Holding Company and American Agricultural Insurance Company (AAIC). As the parent company of LFBMIC, Southern Casualty reinsures the bulk of its business to American Agricultural. And because these companies reinsure to each other, the risk may concentrated rather than globally spread, notwithstanding pooling at AAIC. The LFBMIC’s financial results are fraught; its combined ratio of 182.6 percent in 2023 improved to a still unprofitable 117.4 percent in 2024. In May 2024, insurance company rating agency AM Best downgraded the LFBMIC’s financial strength rating (FSR) from A- to B++. Insurance companies with a “good” ability to meet their ongoing financial obligations receive a B++ rating, whereas insurers with “excellent” or “superior” ability receive higher grades. This was the company’s second AM Best downgrade—its FSR went from A to A- in 2022. In 2024, the Louisiana homeowners’ insurance industry printed a profitable direct incurred loss ratio of 37.7 percent while the LFBMIC lost 28 percent of its surplus.

Market of Last Resort

When insurance agents and their homeowner clients cannot secure insurance, they turn to the state’s insurer of last resort: the nonprofit Louisiana Citizens Property Insurance Co. Louisiana Citizens is mandated by the state to provide insurance to those who cannot obtain coverage in the private insurance market. However, insurance from Louisiana Citizens is more expensive than private-market offerings.

Losses from the hurricanes led to vertiginous growth at Louisiana Citizens—its premium increased more than tenfold from $59 million in 2020 to $618 million in 2023 before turning down to $518 million in 2024. Part of the company’s goals are to “depopulate,” which means to shed its policies to the private market when private insurers are willing to provide insurance at rates that allow them to make a profit.

If Louisiana Citizens reports a deficit, there may be a general assessment—meaning that all insurance companies operating in Louisiana would have to contribute up to 10 percent of their Louisiana insurance premium. And if the general assessment is not enough to return Louisiana Citizens to health, a special assessment may take place.

LIGA

Like most states, Louisiana has a guaranty fund—the private, nonprofit Louisiana Insurance Guaranty Association (LIGA)—to provide a safety net for policyholders whose insurance company enters insolvency when policies are in force. As a private association managed by the insurance industry, LIGA is authorized to assess insurers 1 percent of their Louisiana premium (up to $250 million for solvent insurers). At year-end 2024, LIGA had $360 million available for claim payments. The association currently manages nine insolvent insurers.

Reforms Underway

After a difficult two years for Louisiana insurance companies and policyholders in 2020 and 2021, Louisiana Insurance Commissioner Tim Temple introduced several measures designed to stabilize the state’s insurance market. Signed into law by Gov. Jeff Landry in 2024, the reform bills aim to make the state’s insurance market healthier. The reforms appear to be bearing fruit, helping to stabilize a market coming back from the brink.

The Four Reforms

The combined impact of these four measures should benefit policyholders by contributing toward more affordable and competitive property insurance.

Moving in the Right Direction

Signs that the industry is getting healthier:

Recommendations for Further Improvement

The four insurance bills discussed above are just the beginning of legislation for stronger protection of homes, which ameliorates insurance claims and losses and leads to lower premiums. Other measures to increase affordability include various types of mitigation. Every natural catastrophe is unique and teaches us something new about risk. Hurricane Katrina, which struck New Orleans in 2005 and took 1,392 lives, taught many valuable lessons about evacuation, search and rescue, public safety, and health to reduce loss of life in severe storms. It also revealed the importance of properly functioning levees. Hurricane Ida struck 16 years to the day after Katrina. As Ida raged, the question on everyone’s mind was “Will the levees hold?” and they did—because of lessons learned from Katrina.

R Street research has documented a rise in the severity of natural catastrophes, meaning the building codes of the past may not be sufficient to protect homes from more powerful storms. Louisiana should expand its Fortified Homes program, as storm roof damage precedes damage to home interiors.

In addition to strengthening roofs, other mitigation measures include attaching chimneys more securely using anchors and braces and strengthening garage doors.

Just as Louisiana learned from its neighboring state of Alabama and copied its roof fortification program, so can it learn from Florida’s recent tort reforms. In 2003, Florida passed tort reform measures that would limit the ability of unmerited litigation to drive up insurance claim costs, which in turn drive up insurance premiums. The common thread running through all of these measures is mitigate, don’t litigate.

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