A recent law change in Louisiana is poised to reshape the flood insurance landscape, with significant consequences for both insurers and homeowners. As Louisiana deregulates the insurance market, it opens the door for carriers to abandon policies that have become increasingly costly in the face of heightened environmental risks. While state officials argue this could foster competition and lower costs, many fear it will ultimately leave homeowners more vulnerable. Here’s what insurance professionals need to know.
Louisiana’s Insurance Deregulation Explained
Starting in 2025, insurers operating in Louisiana will have the option to cancel up to 5% of their policies that have been in force for over three years, according to Inside Climate News. Previously, state regulations restricted insurers from canceling such long-held policies or imposing drastic rate hikes. The deregulation allows insurers greater flexibility, which proponents claim could make the market more competitive and ultimately reduce costs.
The rationale behind the new law hinges on curbing what Insurance Commissioner Tim Temple describes as “excessive litigation and overregulation.” Temple has argued that Louisiana’s legal landscape makes it unattractive for insurers, driving up costs for policyholders. However, critics are less optimistic, pointing out that similar promises to reduce auto insurance rates in 2020 were never realized.
Industry Impact: A “Business-Friendly” Turn
The deregulation also reduces penalties for insurers who fail to settle claims in good faith. Under the previous rules, policyholders could receive up to 200% of their claim’s value if an insurer was found to be avoiding payment. The new regulations cap this penalty at 50% of the claim or $5,000—whichever is greater—and allow insurers more time to settle claims. Consumer advocates warn that these changes may leave homeowners facing longer delays and reduced payouts at a time when extreme weather is becoming more frequent.
This “business-friendly” shift seems intended to lure insurers back to the state after a string of damaging hurricanes—including four major storms in 2020 and 2021—prompted at least a dozen major insurers to exit the market. The result has been a surge in policies under the state-run Louisiana Citizens Property Insurance Corporation, which has grown to cover over 90,000 properties, more than three times its count from 2020.
Potential Consequences for Homeowners
While the state’s move may offer some respite for insurers, it paints a concerning picture for homeowners. Critics argue that deregulation is effectively pushing more consumers into the “last resort” coverage provided by Louisiana Citizens. Ben Riggs, Executive Director of Real Reform Louisiana, notes that forcing more residents to rely on last-resort insurance simply exacerbates the problem rather than fixing the issue of coverage unavailability.
The longer-term impact is also troubling. The reduction in available private-market coverage could stall new construction and stagnate the real estate market, especially as the cost and availability of insurance become increasingly prohibitive. Louisiana may soon find itself alongside Florida and California as a state facing severe insurance crises, where mounting premiums and coverage limitations lead to foreclosure and even homelessness.
The Insurance Industry’s Opportunity to Lead
Insurance professionals face a dual challenge—meeting immediate market demands while planning for a future shaped by climate change. Rising reinsurance rates, which have doubled annually since 2017, further strain insurer profitability. These pressures are compounded by the increasing frequency of severe weather events, which have made the industry rethink the traditional homeowners insurance model.
But there are opportunities here, too. The growing importance of resilience in construction—from hurricane-proof buildings to climate-adaptive urban planning—offers insurers a chance to create innovative products that reward resilience investments. Furthermore, consumer advocates suggest the insurance industry could become an important voice for climate mitigation, as the industry is increasingly footing the bill for climate-related damages. Lobbying for proactive climate policies could help manage future risks and reduce loss ratios over time.
Navigating the Road Ahead
The deregulation of Louisiana’s insurance market is a bold move that could lead to significant shifts in how coverage is offered and priced. As insurers adapt, they must balance profitability with consumer protection, all while facing increasing scrutiny from lawmakers and consumer groups. For industry players, staying ahead means embracing both innovation and advocacy, from promoting resilient construction to participating in climate policy discussions.
Insurance agents and brokers will need to be vigilant, helping clients navigate changing regulations and ensuring adequate coverage in a market that’s growing more complex. The stakes are high—not only for the financial health of insurance companies but also for the stability of the communities they serve.