In response to a growing homeowners insurance crisis, Louisiana is deregulating the market.
What's happening?
In 2025, insurance companies will be able to cancel 5% of the Louisiana policies they've had for longer than three years, Inside Climate News reported. Previously, homeowners in that circumstance "could not be denied coverage, face larger deductibles, or be burdened with repeated rate increases."
The outlet said that at least 12 major companies have fled the market after four big hurricanes in 2020 and 2021. The new regulations will make it less costly for "bad faith" insurers to sidestep claims, the Louisiana Illuminator reported.
Previously, policyholders could redeem a penalty of up to 200% of the value of a claim of an insurer determined by a court to have been trying to avoid the issue. The deregulation would reduce that penalty to the greater amount of either 50% or $5,000 and allow the businesses to take longer to pay claims.
Why is this important?
More intense severe weather events, including hurricanes and wildfires, are driving up homeowners insurance rates around the country, but so are the costs of labor, building materials, and insurance companies' insurance policies.
Reinsurance rates have doubled each year since 2017, according to ICN. Companies are increasingly responding by canceling coverage. Since 2020, the state-run Louisiana Citizens Property Insurance Corporation has taken on more than 90,000 policies, an increase of more than 3.5 times the 34,373 contracts it had then, per the news report.
Insurance Commissioner Tim Temple said the change will give residents more options and lower prices, according to ICN. In addition to the rising risks of natural disasters, he said, "Louisiana's reputation for excessive litigation and overregulation" was driving the lack of affordability.
However, ICN reported that Temple is pushing a "business-friendly" agenda and said homeowners insurance is already too costly.
The Illuminator reported that high auto insurance rates went up after "similar promises were made but not kept" in 2020. The word is that these laws will be changed if that happens again, but Temple has not guaranteed lower rates.
"Consumer advocates say lawmakers have allowed the insurance industry to use the threats posed by climate change to make it harder for policyholders to get their claims paid when they need them most," ICN stated. "The law changes also insulate the powerful insurance lobby, which could be an influential voice in demanding change to limit greenhouse gas emissions that fuel climate change."
What's the long-term impact for homeowners?
The outlet said that this could put Louisiana on par with California and Florida as the frontlines of the issue. More foreclosures and homelessness may be the result; new construction could stop, and the real estate market could become stagnant.
"You cannot solve an unavailability problem by forcing more people to insure with the last resort; it makes no sense," Real Reform Louisiana Executive Director Ben Riggs told ICN. "But that's what's going to happen by repealing the three-year rule."
It may take time and effort for homeowners to obtain lower insurance premiums — and the challenges are very real. Fortunately, however, there is a hopeful path forward. For one, we know why more intense extreme weather is occurring.
According to Cornell, more than 99.9% of scientific studies concur that human activities are causing the issue, with dirty fuels contributing the bulk of the planet-warming pollution associated with the problem. Adopting clean-energy solutions such as solar and investing in less polluting modes of transportation, including high-speed rail and walkable infrastructure, can help bring things back into balance over time.
Secondly, the construction sector is forging ahead with new ways of building that improve climate resilience, from floating communities to hurricane-resistant structures, which could lead to less damage that results in large insurance claims.
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