Two years after hurricanes Katrina and Rita, the insurance market in Louisiana may have hit bottom and could be ready for a rebound as levees are strengthened and the state undertakes regulatory changes, the state’s insurance commissioner and experts say.
“I think we have reached the bottom. I think the bleeding has stopped,” Insurance Commissioner Jim Donelon said.
Experts agree with Donelon’s assessment and say that unless this year’s hurricane season picks up consumers can expect to see new options for homeowners insurance begin to open up, perhaps by next spring.
Katrina caused rates to rise dramatically and made it hard for many people to even get insurance on their homes and businesses.
“With all the business that’s down here, these companies can’t afford to stay out of this market much longer,” said Robert Saak, vice president of the Martin Insurance Agency. “That’s why I really think this year is going to be the make-or-break year for us. It’s just going to take one or two new companies coming in, and it’ll be a domino effect.”
Prices, though, are unlikely to fall anytime soon and rates may settle where they are for the foreseeable future, experts said.
“The risk itself has not diminished, and that’s the ultimate driver of the price,” said Bob Hartwig, an economist and president of the Insurance Information Institute.
State-backed incentives, a toughening of building codes, regulatory changes and favorable court decisions are among a host of factors that have appealed to the industry.
Hartwig said the judicial, regulatory and safety factors have made Louisiana a better place to do business.
“It is far more dangerous for an insurer to operate in a state where the legal and regulatory environment is out of control than the threat of hurricanes,” Hartwig said.
And Louisiana will benefit from what’s happening in other places. In Mississippi litigation and punitive damages have scared the industry and Florida is in the midst of an anti-insurer backlash.
There are signs of an easing in the market already, especially in the lightly regulated commercial property insurance sector.
“There’s starting to be more availability,” said Don Beery, vice president of Eustis Insurance and Benefits. He added, though, that “the pricing hasn’t lessened at all.”
The favorable market has attracted one company already: South Carolina-based Companion Property & Casualty Insurance Group. The company says it might start selling commercial insurance in Louisiana as soon as Nov. 1.
“For a good while, Louisiana has been working on making itself a better environment. It looks like a promising place to do business,” said Steven Bloss, vice president of marketing and underwriting at Companion.
The state created a $100 million insurance incentive program providing matching funds for established insurance companies to come to Louisiana and lighten the load of residential and commercial policies that Louisiana Citizens Property Insurance Co. is shouldering.
Regulatory changes include the Legislature abolishing the rating commission and a decision to disband the Property Insurance Association of Louisiana and the Louisiana Automobile Insurance Plan in favor of using standard national organizations, also are attractive to the industry.
So far, though, the homeowners insurance market is less promising and nearly unchanged since spring 2006. Big-name insurance companies will sell homeowners policies without wind coverage as long as they can write auto insurance policies too. Companies such as Chubb, AIG or Fireman’s Fund will write for luxury homes, but that doesn’t do most people much good.
That leaves Louisiana Citizens and Dallas-based Republic Group as the options most people choose. The Republic Group was interested in expanding its business in Louisiana and never stopped writing policies after the storm.
A number of other companies that have appeared before the Louisiana Insurance Rating Commission have said they’d like to get their rates high enough so they could think about writing new policies in Louisiana, but they have yet to do so.
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