Insurance collapse leaves homeowners without policies | world business | Business Insurance

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After forecasters warned of another active Atlantic hurricane season this year, insurance companies went out of business in Louisiana and Florida, leaving thousands of homeowners in the lurch in those storm-prone states.

In Louisiana, the fierce storms have already taken their toll on the insurance market and made the state a “tough place to do business,” according to Jeff Albright, director of Independent Insurance Agents and Brokers of Louisiana. In the last two years, storms Laura, Delta and Zeta cost insurers $10.6 billion, while Ida alone cost $30 billion, causing some companies to file for insolvency.

In recent weeks, a handful of insurance companies have canceled just over 80,000 policies in the Bayou state. As carriers pull out, residents are not only scrambling to find new coverage, they are facing limited options. They can turn to other companies that double their premiums overnight or to their state’s insurer of last resort, Louisiana Citizens.

However, Louisiana law requires Citizens’ premiums to be higher than the highest private rates among major insurance companies so as not to compete with the private market.

Matt DeMeyers, 45, a real estate developer who lives in Metairie, a New Orleans suburb, said finding a new insurance policy has been “frustrating” to say the least. He received a note in late May that his insurance policy would end on July 1. When DeMeyers was offered a new plan, his annual premium increased to more than $23,000, roughly double that.

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According to Robert Stone, a New Orleans-based insurance agent, statewide “premiums are double, if not triple” what they were before 2020.

Florida homeowners face the same headache. The increased risk of major storms threatening to make landfall, following Hurricanes Harvey, Michael, Florence, Dorian and Ida, along with a series of litigation, has been a major blow to the state’s insurance market.

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 company’s financial rating.

Ivis Fernandez, a real estate agent who lives in Homestead, 35 miles south of Miami, was not happy to learn that her FedNat policy had been cancelled. It was her second home insurance policy in three months, she said. She shared documents with a reporter that showed she had been paying the insurer $3,002 a year, compared to $1,682 with another insurer in 2019.

Catastrophe risk modelers say climate change, which is bringing more intense storms, will continue to stress insurance markets and make it harder to get affordable coverage.

As storms intensify, the likelihood of large-scale property damage increases, according to Carolyn Kousky, executive director of the University of Pennsylvania’s Wharton Risk Center and an expert in climate risk management. Insurance companies, therefore, have to accumulate even more capital to pay all homeowners’ claims to protect themselves against losses that trigger bankruptcy.

Businesses and homeowners have not made the necessary adjustments to adequately prepare for a higher-risk world, Kousky said.

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

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Experts also question whether officials in vulnerable US cities are financially prepared to protect homeowners and urban infrastructure from storm surge and wind damage.

“New York, for example, could have enough money to build a big flood wall,” said Dag Lohmann, chief executive of KatRisk, a climate catastrophe modeling agency. But other places might not have the resources, he said.