After Florida’s insurance market failures, will Louisiana be next to fall?
Last week, a special session of the Louisiana Legislature passed and funded an effort to deter insurance companies from leaving the Pelican State after a raft of hurricanes wreaked havoc on the financials of several insurers, driving some to insolvency. This particular event brings to mind Florida, which had two of its own special sessions in 2022 to deal with a broken insurance market. This begs two questions: are the insurance woes in the two states related and are there lessons Louisiana can take away from Florida? Our analysis shows there are similarities and differences in the two states’ crises, and that Louisiana and Florida can learn from each other.
Comparing Florida and Louisiana
The ultimate goal of the Louisiana measure, the Insure Louisiana Incentive Program, is for homeowners’ insurance in Louisiana to be both available and affordable. Florida’s insurance reform bill, Senate Bill 2A, passed in December 2022, has the same goal for the Sunshine State. There the similarity ends. The Florida bill, the Florida Optional Reinsurance Assistance Program, has two main objectives: it takes aim at Florida’s epidemic of frivolous, unmerited litigation which drives up insurance premiums; and it makes additional reinsurance available at a time when much-needed reinsurance is scarce and expensive. The Louisiana measure, by contrast, provides matching grants to keep insurers from bolting from the state.
The cause of Louisiana’s insurance crisis is the state being walloped by four catastrophic hurricanes since 2020—Ida, Laura, Delta and Zeta. Ida alone was responsible for an estimated $17 billion to $25 billion in insured losses. By contrast, prior to Hurricane Ian in 2022, Florida had no landfalling hurricanes since Michael in 2018. In the hurricane-free 2019 to pre-Ian 2022 period, several Floridian insurers failed. This fact demonstrates that the collapse of Florida’s insurance market was not caused by hurricanes.
There was a knock-on effect in Louisiana from some of the recent Florida insurance company failures. Many of the fallen Floridian insurers—FedNat, Gulfstream, Southern Fidelity, Weston and Lighthouse—wrote business in Louisiana as well. Other failed insurers, Americas Insurance Company, Access Home Insurance Company and State National Fire Insurance Company, were Louisiana-only writers.
Louisiana and the Law
Both Louisiana and Florida are burdened by courtroom excesses. Florida’s lawsuit abuse is characterized by billboard lawyers and contractors pursuing meritless, frivolous litigation that shakes down insurance companies into paying for roof replacements not covered by homeowner insurance policies.
Louisiana’s legal excesses impacting insurers are often related to insurance fraud. Louisiana is notorious for staged accident rings that contribute to high insurance rates for automobile and truck insurers. Staged accidents involve confederates in organized criminal gangs colliding intentionally with trucks or other vehicles, and feigning injuries to extract large settlements from insurance companies. One such egregious ring in the New Orleans area included 40 participating fraudsters and led to the attorney orchestrating the scheme to plead guilty for his participation in the scheme. The investigation of this massive fraud continues to find more players, and may involve additional attorneys.
In addition to being home to criminal fraud impacting insurance, Louisiana’s tort (civil litigation) climate is also troublesome. Louisiana is close to the top of the list, at #7, in the Judicial Hellholes ranking of states with the worst insurance climates. It was also given a D- grade in R Street’s 2022 Insurance Regulation Report Card study.
Louisiana Advantages, and a Good Citizen
In some ways the Louisiana insurance market is stronger than Florida’s. Whereas Florida responded to past periods of heavy catastrophe losses by welcoming thinly capitalized, highly leveraged startup insurers to the peninsula, Louisiana’s insurance market largely consists of strong national insurers. The table below, organizing the largest insurers in the two states in decreasing order (by premium), shows Louisiana’s market to be dominated by national insurers (italicized), whereas only a few large nationals feature among the top players in Florida’s market.
|Top 10 Louisiana Homeowners’ Insurers||Top 10 Florida Homeowners’ Insurers|
|Allstate||Citizens Property Ins. Corp.|
|Liberty Mutual||Tower Hill|
|Louisiana Farm Bureau Mutual||USAA|
Source: Standard & Poor’s Capital IQ Pro
Another difference between the Louisiana and Florida markets, in which Louisiana comes out on top, is the smaller size of Louisiana’s market of last resort, Louisiana Citizens Property Insurance, compared to Florida’s Citizens Property Insurance Corporation. Louisiana Citizens writes $35 million in premium, and charges more than the private market, whereas Florida’s Citizens writes close to $1 billion in premium.
R Street applauds Louisiana for taking a bold step to address its insurance crisis, just as we supported the recent legislation in Florida, where we testified in both special legislative sessions. The start of hurricane season is less than four months away. With good measures introduced in both states, we just might make it through this year without another insurance crisis.