Last Updated: July 25, 2022

Insurance Meltdown Leaves Louisiana And Florida At High Risk In Hurricane Season 2022

Highlights:

  • Thousands of Louisiana and Florida residents lost their homeowner’s insurance coverage, the eastern US braces for a busy Atlantic hurricane season, and expect an insurance meltdown in more states. 
  • Premiums across the Bayou state and the Sunshine state have doubled and, in some cases, tripled, according to a New Orleans-based agent. 

National Oceanic and Atmospheric Administration have predicted the Atlantic to see up to 21 storms this hurricane season in 2022 that can cause more insurance meltdowns in the USA. As meteorologists warned of another active Atlantic hurricane season very soon this year, most insurance companies have closed their business in Louisiana and Florida, leaving thousands of homeowners in those storm-prone states in the lurch. 

The U.S. National Oceanic and Atmospheric Administration said Tuesday that the Atlantic might see six to ten hurricanes from between June and November, with three to six of those becoming the major systems. A total of 14 to 21 named storms might occur, with the upper end matching the third-most active season of last year. Wind speeds of 111 miles per hour or greater are predicted to be the characteristic of the major storms upcoming this year. Likewise, 14 named storms can produce winds of at least 39 mph on average per season. 

What’s Happening In the Bayou State- Louisiana? 

As Jeff Albright, president of the Independent Insurance Agents and Brokers of Louisiana, stated, fierce hurricanes in Louisiana have already impacted the insurance industry and rendered the state a “Tough Place To Do Business.” Storms Laura, Delta, and Zeta cost insurers $10.6 billion in the last two years, while Hurricane Ida alone cost $30 billion, forcing some insurance carriers to declare bankruptcy. 

In the recent weeks, some of the insurance companies forbade just over 80,000 policies in the Bayou State. Now that the carriers backed out, residents are struggling not only to find new coverage but also are left with limited choices. In such a scenario, they may turn to other insurance carriers that double their premiums overnight or to their state’s insurer of last resort, Louisiana Citizens. On the other hand, Louisiana law mandated that Citizens’ premiums are higher than the highest private rates among other major insurance carriers to not compete with the private market.

A victim, Matt De Meyers, a real estate developer who resides in the New Orleans suburb of Metairie, mentioned that finding a new insurance policy has become “frustrating” at this stage. He had received a note from his carrier in late May that his insurance policy would expire on July 1. And when his insurance carrier offered him a new plan, his annual premium crawled to over $23,000, which was about a two-fold increase. 

Louisiana faces a hike on premium for Homeowner’s Insurance 

Average homeowner insurance premium for $300k replacement cost, by jurisdiction 

insurance meltdown in Louisiana

*Calculated from 2019 NAIC data for an “all-risks” HO-3 policy with an insurance range of $300k-$399k  [Source: Louisiana Department of Insurance, NAIC ]

What’s Happening In the Sunshine State-Florida?

Florida homeowners face the same issue as in Louisiana. The heightened risk of large storms threatening to make landfall — after Hurricanes Harvey, Michael, Florence, Dorian, and Ida — coupled with a stream of litigation has significantly affected the state’s insurance market.   

On the top of that, Federated National, which insured 140,000 Florida policyholders, had to go through a court-ordered restructuring agreement and cancel 56,000 plans after an insurance rating agency downgraded the firm’s financial standing.   

A real estate agent named Ivis Fernandez, who lives in Homestead, 35 miles south of Miami, also shared that she was unhappy that her policy with FedNat was canceled. She mentioned it was the second time she got her home insurance policy within three months. Also, she shared with the reporter paperwork showing she had been paying the carrier $3,002 a year, compared to $1,682 with another insurer in 2019. 

Floridians face a hike on premium for homeowner’s insurance 

Insurance Meltdown in Florida

*Calculated from 2019 NAIC data for an “all-risks” HO-3 policy with an insurance range of $300k-$399k  [ Sources: Florida Office of Insurance Regulation, NAIC ]

Here, Catastrophe risk modelers mentioned that climate change — triggering other intense storms — will time and again stress the insurance markets and make it harder to obtain affordable coverage.  

As stated by Carolyn Kousky, executive director of the University of Pennsylvania’s Wharton Risk Center and an expert on climate risk management, the storms will intensify in 2022, so the probability of large-scale property damage rises. Therefore, Insurance companies have to gather even more capital to pay for all the claims for homeowners to protect themselves against meltdown-triggering losses. Even then, the companies and homeowners have not yet made the adjustments to prepare for a world of higher risk adequately, Kousky said. 

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“What it really comes down to, in my mind, is that the cost of insurance is related to the risk, and so insurance costs go up when risk goes up,” she said. “The real way to kind of solve this problem is to reduce the underlying risk — and we haven’t done that nearly enough in any place that’s prone to these disasters right now.” 

The experts also are curious if officials in vulnerable U.S. cities are financially ready to protect the homeowners and urban infrastructure from storm surges and wind damage and are curious if US government is ready for an insurance meltdown. 

Dag Lohmann, chief executive officer of KatRisk-a climate catastrophe modelling agency, said, “New York, for example, might have enough money to build a big flood wall.” However, he added that other places might not have similar resources per need. 

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