By Rachel Costello
Source: Photo by JD Designs on Unsplash
It only takes one word to describe the property insurance situation in New Orleans: dire. Hurricane Ida’s destruction has caused many insurers to go bankrupt or exit the state, leaving citizens with fewer insurance options. The storm has also led private insurers to increase their policy premiums, causing property insurance in the city to become unaffordable. As insurance becomes more expensive, premiums will pose a greater burden on citizens and non-profits will find themselves unable to help in providing affordable housing. This, in turn, will force larger amounts of lower-class New Orleanians to relocate out of state, further contributing to an already declining Louisiana population.
The lack of private insurance companies willing to write policies in-state, along with the increasing rates has created a crisis. As a result, people have had to get policies written by Louisiana Citizens, which is run by the state. Louisiana Citizens is the “the insurance of last resort” and is meant to mainly provide insurance to those who are unable to get policies through private insurers. As such, Louisiana Citizens is required to charge premiums 10% greater than those of other insurers. Therefore the recent increases in private insurers’ premium rates have caused Louisiana Citizens to up the price of their premiums by as much as 63%, further contributing to the issue of unaffordable insurance.
Adding to the uncertainty of the future of property insurance in the state is the recent news that current Insurance Commissioner Jim Donelon, who has held the position since 2006, is not seeking re-election. Some of Donelon’s recent initiatives to address the issue have included implementing a Fortified Roof Program in the state along with offering monetary incentives to insurers. Under the Fortified Roof Program, Louisiana citizens are able to apply for funding to improve their roofs to meet the “Fortified Roof” standard, which in turn will allow them to get reductions on their property insurance rates. The Louisiana Legislature’s passing of a $45 million fund to incentivize insurers, is in an attempt to get insurers to return and write policies in the state.
Reception to the Insurance Commissioner’s response has been mixed. John Corb, who has lived in the area for 65 years and been a homeowner for almost 50 of those years, was hopeful about the Fortified Roof Program. Corb just completed his own fortified roof and hoped he would get deductions on his insurance. Corb, who is retired, explained how this deduction would be important since “I think I pay right now $3,500 for my insurance but there’s speculation that could easily go up to $5,000. And of course, [for] people who are retired like me, on a fixed income, that’s a big bite.” Therefore a deduction could help to lessen the bite. Corb also said that he “Felt for the Insurance Commission because I don’t know what you do” in the given insurance landscape.
Andreanecia Morris, Executive Director of the Greater New Orleans Housing Alliance (GNOHA), had less favorable views of these initiatives. GNOHA is a leading organization in a collection of various other nonprofits that work to address the issue of unaffordable housing in the state. As Morris explained, the Housing Alliance is “Engaged around changing and creating a new system of housing, an equitable system of housing.” Part of this mission includes GNOHA’s agenda, which is to “Advocate for improvements to high insurance premiums” since, as Morris explained, “This system is broken, it needs to be changed, and so we have to address it comprehensively and insurance is a key part of it.”
GNOHA believes that the roofing initiative is widely inequitable and that under the program’s first come, first serve model, many of the people who most need their roofs improved won’t be helped. As Morris explained, “There’s still blue tarps on people’s homes, why not target this money to improve the roofs of those people first?”
Additionally, HousingLOUISIANA– a member organization with GNOHA– put out a release that opposed trying to solve the insurance problem by offering insurers monetary incentives. In the release, the organization cited concerns that insurers who will return will only write policies to wealthier customers and to those who live in lower-risk areas, forcing lower-class residents to remain on Louisiana Citizens. The release also questioned the effectiveness of this strategy and proposed alternative solutions such as the revamping of Louisiana Citizens and investing in the housing stock.
In general, GNOHA is dissatisfied with the work of Donelon’s office. A significant amount of GNOHA’s focus is directed toward improving the regulation of the insurance industry. As part of that effort, GNOHA’s insurance task force meets with the Insurance Commissioner’s Office periodically to discuss issues and to obtain data from them. Morris expressed the Housing Alliance’s displeasure with the work of the Commissioner’s Office. Overall, GNOHA believes the Insurance Commissioner and his office have largely been ineffective. As Morris put it, when Donelon leaves office, “He will be leaving us in a terrible position.”
Already, the effects of the current insurance landscape have been felt throughout the city. The non-profit People’s Housing + has seen its work significantly affected by the insurance crisis. People’s Housing + was created after the merger of Crescent City Land Trust, Tulane Canal Neighborhood Development Corporation, and Home By Hand. One major part of the work that People’s Housing + does includes helping lower-income residents become first-time homeowners. The organization builds new homes and individuals apply for admission into the program to buy these new houses. If an applicant meets the income requirements and is accepted into the program, People’s Housing + helps guide them through the home-buying process and provides them with informational resources, trying to, as Erica Toriello explains, allow the individual to be “The most educated homeowner they can be.”
Toriello, who is the Director of Housing Policy and Homebuyer’s Services at People’s Housing+, stated that the increase in property insurance “Is a huge issue right now.” The higher insurance rates have affected who the organization can help. Individuals who previously would have been accepted into the program have now been denied since, with the higher rates, they are unable to meet the needed income criteria.
Changing premium rates have also caused People’s Housing + to have to decline some people who were already in the program. As Toriello explained, “It’s really frustrating right now” since many have worked extremely hard, and “Did everything they were supposed to do” by going through the process to buy a home. Money is saved, bills are paid off, loans are obtained, and homeowners training is attended, yet, at the last stages, homeowners insurance proves to be an insurmountable obstacle.
This is especially devastating since many people dream of becoming a homeowner. A home offers a safe place to raise their kids and can serve as an avenue through which to build generational wealth. Toriello noted that it wasn’t just those going through the application process that are affected– people who have completed the program and purchased their homes are affected by the increased costs as well.
Adding to the difficulties of People’s Housing + is that the issue of property insurance is conflated with others. This has caused the organization, as Toriello stated, to deal with the issues of “Higher construction costs, higher interest rates, inflation, higher insurances, so it’s been very challenging and it takes longer too, to build the home, much longer than it was taking before.”
Because of the elongated process as well as ever-changing circumstances, People’s Housing+ has had to modify the way in which they conducted the process. Originally, the organization pre-sold the houses. However, now that things are changing so quickly, they’re unable to continue this practice since it caused them to have to deny people who were already in the program. As Toriello explained, “It was pretty devastating to have to cancel with these folks because, again, this is something that’s like a dream for them.” Now, the organization waits till much later in the process before bringing in a buyer. The issue of property insurance has affected both the types of people that People’s Housing + can serve as well as influenced the manner in which they do so.
Even residents who are not currently at risk of having to relocate have been affected by the crisis. Corb, the homeowner, talked about how a while back, he was looking to bundle his auto and homeowners’ insurance. However, Corb’s auto insurance is through Geico and he found out that “They didn’t even do business in Louisiana.” Corb has homeowners insurance through State Farm and flood insurance through the National Flood Insurance Program, which is run by FEMA. Corb stated that he hasn’t had to make a property insurance claim in years and that he has yet to see a massive increase in his own insurance. However, he’s anticipating the possibility of his rate significantly increasing this upcoming December and stated that he had “Oh yes, oh yes, a lot of concern” over increasing insurance prices. As he explained, “It’s a common subject. So it bothers me.”
With the bleak state of insurance, many are concerned about the future. Corb stated that has the same concerns regarding insurance that he had after Katrina. He’s worried that companies will bank on the fact that “People are just going to get used to insurance companies, like gas, the price is just going to go up, and you’re just going to have to pay it.”
Corb also expressed concern for future storms and the effect they could have on insurance. As he explained, “Just to give you an example because I think it’s going to affect possible homeowners. My note, my monthly note, just to use for example, say it was $1,000, probably $600 of that $1,000 went towards insurance, mostly insurance and taxes, but mostly insurance. And only $400 went towards my principal and interest on the loan. So if someone wants to buy a house, they’re going to have not only the principal interest to pay but they’re going to have these exorbitant insurance rates.”
Corb talked about how he’s “Heard more and more talk of people saying they don’t know if they’re going to renew their insurances.” While what Corb has heard so far has just been talk, he did discuss how he’s observed that many people are feeling hopeless and are wondering what’s the point of paying insurance. As Corb explained, “Some people can’t afford it, they just can’t afford it.”
Huge increases in insurance rates also threaten to pose a burden for people on fixed incomes. Corb described how these premium hikes could catch people off guard since, “All of a sudden they [insurers] come in and say well, you were paying this much and next year you have to pay 50% more, you go ‘oh my goddess’. So that compounds the problem.”
While many can agree that issue of property insurance in the state needs to be addressed, a path forward remains less clear. There remain significant challenges to fixing the issue. Morris from GNOHA discussed how property insurance is an issue that’s not well understood and doesn’t get enough attention. In fact, a Forbes Advisory survey found that a significant amount of homeowners misunderstand crucial parts of their policy; one finding was that 36% of homeowners in the southeast falsely believed that their policy covered flood water damage.
Morris also identified the community’s lack of faith in politicians and in their own ability to hold elected officials accountable as another obstacle in the fight against unaffordable property insurance. In order to address this issue, GNOHA and its partner organizations work to educate citizens on the issue of property insurance and invite civilians to sit in on insurance-related committees as well as attend monthly meetings on the issue across the state.
Although Corb keeps up to date on the issue, he was uncertain of what the best way to fix the issue would be. Corb hopes the government will do something, however, he isn’t sure if the best course of action is through offering insurance companies incentives or helping to subsidize people’s insurance. Regardless of what the correct solution is, Corb said “It’s got to be an obvious concern for everybody. I just hear people talk and that’s what they talk about. Matter of fact, a friend of mine called me up just to tell me, same thing, he pay $3000 for his insurance and now it’s up to six. I don’t know what the solution is.”
When asked about her hope for the future of property insurance in the state, Morris stated that GNOHA’s “No longer hoping that the right thing will happen, we have to make it happen.” With the upcoming Insurance Commissioner Race later this year, GNOHA is hoping to be able to find a candidate to support in the race, and, if they are elected, to maintain a relationship with them to hold them accountable. Morris stated that her ideal solution to the insurance crisis would include having a more effective Insurance Commissioner, making investments in housing right now and in the long run, having hard, yet important conversations about how to mitigate risk, and stopping the practice of giving money to insurance companies.
Yet Morris remains skeptical. The conversation around reforming insurance in Louisiana is a cyclical one, which is why, as Morris stated “We’re [GNOHA] talking about changing the system because that’s a function of the existing system, the repetitiveness.” Morris remembers similar conversations being held in the aftermath of Katrina, where policymakers didn’t want a situation in which hundreds of thousands of people were on Louisiana Citizens, yet that’s the state of insurance currently. It remains to be seen whether future insurance initiatives will be able to change this.
Louisiana’s insurance crisis will be a difficult problem to fix, but a necessary one. As climate change threatens to produce increasingly destructive storms, the role of property insurance in the state will only become more and more important for post-storm recovery. If the issue is left unaddressed, future generations of New Orleanians could also be adversely affected as homeownership prospects dwindle due to the rising cost of insurance. As Corb, who expressed concern about what the current insurance landscape would mean for younger generations of his family, put it, “You got children and grandchildren, what are they going to be faced with?”
Failure to resolve the issue will also result in more people leaving the state as they find themselves unable to afford to live in the region and housing non-profits find their hands increasingly tied. For many, this exodus will be forced. When asked what has kept him in the area for so many years, Corb answered, “Family and although there are some miserable things in the area, there are some things I like, food, family, friends, and so on, and the culture.” Corb went on to reminisce about people’s love for the region, stating, “I know that when I was in college, the recruiters used to say that was one of the bad things about trying to get people in Louisiana to move to Houston…they didn’t want to move. It’s kinda home.” With the way insurance is looking right now, people may not have the choice to stay in the future.
The issue of property insurance is one that affects everyone spanning from non-profits to the average citizen. Although the problem is not one that’s understood by the average person it’s an important one. As Corb explained “What it is, it’s not just isolated…this is the talk of the town. I mean all my neighbors are talking about it.” If left unaddressed, the results could be devastating. Failing to enact adequate reforms will, as Morris said, mean that “We’re going to be having this conversation again in five years and with less people in Louisiana to fight for” as more residents will be forced to relocate to more affordable areas. This loss of population could have significant economic impacts on the state. As Morris stated, the stakes are high and through failing to address the insurance crisis, “They’re [elected officials] signing the death mortarium of this state.”