by L. Graham Arceneaux, Esq.

Graham Arceneaux & Allen, LLC

USFN Member (LA)

Louisiana is currently in a crisis when it comes to property insurance. In the wake of several hurricanes going back to 2020, more than a dozen insurance providers doing business in Louisiana have become financially insolvent. Other insurance companies pulled out of the state due to the number of claims and payouts. As a result of these natural catastrophe losses, homeowners have seen their insurance premiums increase as much as 60% to 100% in one year.

Property insurance issues are not limited to Louisiana. State Farm and Allstate have pulled back from California’s home insurance marketplace, stating increasing wildfire risk and soaring construction costs have prompted them to stop writing policies in the nation’s most populous state.

In Colorado, devastating wildfires have seen homeowner’s premiums rising significantly. Colorado state lawmakers commissioned a study which found 76% of the states’ insurance carriers decreased their exposure in Colorado in 2022 leaving the five largest insurance companies to dominate the market.

Florida, like Louisiana, has struggled to keep their insurance market healthy due to the unfortunate frequency of hurricanes impacting the state.

Insurance companies agree that the cycle of natural disasters, and their increased intensity in recent years, along with the higher costs to repair homes and the higher costs for reinsurance premiums have led to the homeowner bearing the burden of substantially increased insurance premiums.

The increase in insurance premiums in Louisiana (as previously stated) can be as much as 60% to 100% for calendar year 2023. Borrowers across the country are still dealing with persistent inflation as is evident by the Federal Reserve’s latest rate increase on July 26, 2023.

Borrowers are now watching their monthly mortgage payments increase dramatically due to the escrow shortage caused by increasing insurance premiums. Borrowers are calling their servicers and seeking some sort of relief, but finding little relief as escrow charges are not subject to modification. Insurance costs in Louisiana and other states vulnerable to natural disasters are pushing some borrowers to their financial limits.

In summary, an increase in property insurance for borrowers will necessarily increase mortgage defaults and, by extension, foreclosures. Until property insurance rates moderate, expect to see this trend in states with heightened natural disaster vulnerabilities.

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USFN e-Update - August