Post-Hurricane Rate Raise?
Following three major hurricanes, Louisianans could see insurance rates increase.
Arlene Estle stands outside her home, which was damaged by floodwaters from Hurricane Harvey in Houston.
AP Photo/David J. Phillip
New Orleans may have been spared so far this hurricane season, but as insurers tally the costs of hurricanes Irma, Harvey and Maria, it might mean an increase in insurance rates.
An early estimate of the insured losses in the United States from Hurricane Irma range from $25 to $35 billion according to AIR Worldwide, a catastrophe modeling firm. Meanwhile, losses from Hurricane Harvey are a little more than $10 billion. In 2005 Hurricane Katrina caused $25.4 billion in insured property losses in Louisiana, according to Insurance Journal.
While those living in the areas most affected by the hurricanes run a higher risk of seeing auto and homeowners’ rates increase, insurance agents say that a ripple effect can happen in non-affected areas.
“Generally speaking, the insurance industry is affected by weather patterns both positively and negatively over time,” said Gates Skene, a personal risk advisor for Ross & Yerger. “The lack of major storms over the past several years has led to what we refer to as a ‘soft market’ — meaning that premiums may be lower, underwriting appetites are more lenient, and competition is increased between insurance carriers.”
She added that this trend is largely due to increased surplus and capacity in the market because insurers have not had to pay as many claims.
“Now that we’ve seen the devastating financial impact of back-to- back hurricanes, we can expect the insurance market to harden,” she said.
A hardened market won’t affect only areas that have experienced direct damage from severe weather events, but the industry as a whole. Skene added that homeowners across the United States, but especially in the Southeast, can expect to see not only rate increases, but also stringent underwriting guidelines and even non-renewals as companies with less financial capacity pull out of the market altogether.
AP Photo/Alan Diaz/David J. Phillip
Debris surrounds a destroyed structure in the aftermath of Hurrican Irma on Wednesday, Sept. 13, 2017, in Big Pine Key, Florida.
“Therefore, individuals who are buying homes in the areas that were most recently affected by damage can expect to see a tightening of underwriting guidelines, particularly for older homes that are more likely to sustain damage,” she said.
Following hurricanes Katrina and Rita in 2005 — which accounted for $28 billion in insured losses in Louisiana alone — many insurance companies left the state. A total of 930,000 claims were filed in Louisiana resulting from the two storms, according to the Insurance Information Institute.
“This created a huge problem. You can’t have a real estate market without a stable insurance market,” said Dan Burghardt president of Dan Burghardt Insurance Agency.
In turn, state property insurer Louisiana Citizens Property Insurance Corp., grew. In 2008, the insurer had 174,000 policies according to the Louisiana Department of Insurance.
In 2016, insurance commissioner Jim Donelon announced Louisiana Citizens Property Insurance Corp. was shedding 10,000 policies to shift that coverage to private insurers in order to spread the risk. According to the state’s Department of Insurance, Louisiana has been able to attract 22 private insurers to handle property policies since Katrina. As of last year, Louisiana Citizens had less than 1 percent of the homeowners’ insurance market.
AP Photo/Alan Diaz/David J. Phillip
Interstate 10 in Houston closed due to floodwaters from Hurricane Harvey on Tuesday, Aug. 29, 2017.
“Right after Katrina no one was interested in writing homeowners’ insurance policies,” said Burghardt. “All of the major companies pulled out of the state and people were left with either having to pay exorbitant rates or using a backup like Citizens.”
He added that after hard weather events, the insurance market typically responds by being more selective about where and how much risk they are willing to take on. Insurance companies rely on what is called a reinsurance — insurance purchased by an insurance carrier from one or more companies in order to mitigate risk. The reinsurer would enter into an agreement where they would pay a share of the claims that the main company receives during strong weather events. The process assures that one company isn’t taking on too much risk and is spreading it out among smaller companies.
Marc Eagan, president of Eagan Insurance, said even 12 years after Katrina a lot of companies won’t insure within 3 miles of Lake Pontchartrain as part of steps they have taken to minimize their losses after a major weather event.
He said that although Irma and Harvey deeply impacted Texas and Southern Florida, those impacts have yet to be felt locally. Most of the damage in Texas was due to flooding and in Florida a lot of damage was from coastal surge. Private insurers don’t typically insure against flood damage. Flood insurance is managed under the National Flood Insurance Program (NFIP).
According to a report by CNN Money, about 400,000 homes in the counties affected by Hurricane Harvey have policies under the NFIP and about 500,000 homes in counties along the Florida Gulf Coast. However, after hurricanes Katrina and Sandy, as well as several flooding events in recent years, the program only has about $2 billion cash in hand and the ability to borrow only up to $6 billion.
Recent reports show that very few homes are insured against flood damage. Only about 15 percent of homes in Harris County, Texas — where Houston is located — are covered by flood insurance. Even high-risk areas like New Orleans have seen drops in the number of homes covered by the NFIP. Over the last year, the number of NFIP policies in New Orleans lapsed by 3,200. This represents a 3.8 percent drop from June 2016 to June 2017, according to data provided by the Federal Emergency Management Agency (FEMA).
A smaller pool of individuals buying into the program means less money to pay out in the event of a natural disaster like back-to-back hurricanes.
“Insurance means buying into a pool. You weren’t affected this time but someone else was,” said Trey Maddox with Morrison Insurance Agency in Metairie.
He added that it may still be too early to see how far the ripple effect from Irma and Harvey will hit.
Insurance rates vary depending on the location, age of a property, and construction of the home. So far most of the claims from both storms are flood related, although there have also been property claims from hazard damage.
“We certainly are nowhere near Katrina rates, but I believe we have hit the bottom and rates are on their way up,” he said.
Top 10 costliest Hurricanes in U.S. History
* Monetary value in 2016 dollars
Source: Insurance Information Institute
Aug. 25–30, 2005
|Andrew||$24.47 billion||Aug. 24–26, 1992|
|Sandy||$19.8 billion||Oct. 28–31, 2012|
|Ike||$14.03 billion||Sept. 12–14, 2008|
|Wilma||$12.4 billion||Oct. 24, 2005|
|Charley||$9.3 billion||Aug. 13–14, 2004|
|Ivan||$8.89 billion||Sept. 15–21, 2004|
|Hugo||$7.2 billion||Sept. 17–22, 1989|
|Rita||$5.6 billion||Sept. 20–26, 2005|
Sept. 3–9, 2004