Louisiana’s Flood Losses Skyrocket as Insurance Participation Dwindles

Louisiana residents are on pace to face dramatically more flood-related losses in 2024 than they did a year ago. And yet, more homeowners are walking away from the flood insurance necessary to protect them.

FEMA’s National Flood Insurance Program (NFIP) reports it paid out $4,427,807 for 113 claims in 2023 across the state. The agency has already paid out $3,219,556 to Louisiana policyholders this year.

But NFIP policies are down 6% year-over-year, dropping from 478,354 in March 2023 to 450,955 in March of this year.

Severe weather driving rising costs

Dropping their flood insurance appears to be a solution for many Louisiana residents to manage their otherwise soaring insurance costs.

The Pelican State is home to three of the 10 most expensive home insurance cities in the country, according to Insurify data: Kenner (No. 7), New Orleans (No. 8), and Thibodaux (No. 10).

While the nation’s 10 most expensive home insurance cities are located in three different states, they are all coastal. They also all carry comparably negative ratings from FEMA’s National Risk Index. Kenner and New Orleans have ratings of “Relatively High.” Thibodaux’s FEMA rating is “Relatively Moderate.”

The index is an online tool created by FEMA to grade communities based on their potential risk for 18 different natural hazards, including flooding, drought, earthquakes, hurricanes, wildfires, and more.

Flooding, hurricanes, and extreme heat rank as three of the top weather concerns in Louisiana, with tornadoes also being a viable threat in certain areas of the state.

The plethora of risks Louisianans face adds up, and the state reported $310 billion in severe weather-related damages in 2023, the third-highest total in the nation.

Home and flood insurance pricing is getting too high for Louisiana homeowners

Weather-related losses play a role in Louisiana having the second-highest home insurance rates in the nation. And as home insurance rates climb, many homeowners are also struggling with their flood insurance rates.

More than 454,000 homeowners in Louisiana have an active flood insurance policy with the NFIP, according to FEMA. Almost 75,000 of those policies cover properties in Orleans County, totaling more than $22 million in coverage.

A further nearly 73,000 policies are in force in Jefferson Parish County, for $21 million in total coverage.

But rates for this coverage are getting more expensive, as well. In April, the NFIP rolled out the first of its 18% price increases aimed at getting premiums in line with the organization’s Risk Rating 2.0. About 20% of policyholders in the state saw their rates drop due to this new rating system. The remaining 80% saw premium increases.

Legislation focused on reshaping the market

As Louisiana homeowners grapple with rising costs and dwindling options, legislators seek to reverse the market’s course.

House Bill 611 and Senate Bill 370 are currently making their way through the Louisiana Legislature with the goal of bringing increased options to the marketplace. The bills call for a repeal of the three-year rule, which mandated insurance companies can’t drop a policyholder’s coverage after three years.

Proponents say the bill will help Louisiana’s struggling insurance marketplace by making the state more appealing to insurers and increasing consumer options. Opponents, however, say the legislation will have the opposite effect and reduce consumer choice in the market while raising prices. They argue this will ultimately drive more Louisiana residents to Citizens, the state’s insurer of last resort.

What’s next: Can homeowners stay in Louisiana?

The average rate for homeowners insurance in Louisiana is $6,354 per year, according to Insurify data. However, Insurify predicts those rates will climb 23% next year, the largest jump in the U.S., bringing the new average rate to $7,809 per year.

The impact of such rising costs affects not only those who stay but also the state itself, based on those who leave.

A recent report from Moody’s Investor Service projects Louisiana will experience a “severe” loss of working-age citizens caused, in part, by the “state’s susceptibility to natural disasters.”

“Expensive insurance has the potential to contribute to out-migration,” Moody’s stated.

It may have already begun, as Louisiana’s population has declined by 107,000 since 2016, according to the U.S. Census Bureau.