By Helen Street
In 2023, James and Elizabeth received a homeowners’ insurance bill of over $20,000. They were already preparing to move to Colorado, citing the failing infrastructure of New Orleans, LA. Obtaining a new policy on the same property was impossible on the open market, so the home’s future owners went with the state-run insurer of ‘last resort,’ Louisiana Citizens Property Insurance Corporation (Citizens), plan for over $30,000.
During the record-breaking hurricane seasons of 2020 and 2021, Louisiana, resting on the coast of the Gulf of Mexico, was hit by four major hurricanes: Laura, Delta, Zeta, and Ida. In the wake of these storms, insurance premium prices skyrocketed. It is no secret that global climate change has exacerbated the risk of hurricanes, but not all risks are created equal. Not everybody is as fortunate as James and Elizabeth who had the opportunity to move away, nor does everybody want to.
Louisiana’s Loss of Natural Protections:
Many people in Louisiana cannot afford the consequences of the insurance crisis. Because of this, some people have either elected not to carry insurance or are at risk of foreclosure due to mortgage-mandated homeowner’s insurance. To better understand this issue, examining the history of the Louisiana wetlands and the oil industry is essential. Anthropogenic activities have made Louisiana more vulnerable to hurricanes’ storm surges, which cause mass flooding in coastal regions. A key natural protection that Lou isiana has against hurricanes is the wetlands, as with every 2.7 miles of wetland, 1 foot of storm surge can be reduced. From 1932-2000, Louisiana lost 1,900 square miles of land. The oil and gas industry, which has been dredging canals through the marshes and wetlands for 100 years, is largely to blame for this land loss.
These canals are built to facilitate the movement of equipment such as boats, drilling rigs, and pipelines for oil and gas companies through the marsh. A key side effect of this is saltwater intrusion. This means that salt water from the Gulf of Mexico can penetrate the freshwater and brackish marshes, killing and weakening the plants that hold together the land. This creates a vicious cycle of high storm surges destroying the marsh, inundating it with salt water, weakening it further, and allowing the next storm surge to be stronger and reach further inland. Storm surges are also exacerbated by rising sea levels, spurred on by climate change, which the oil and gas industry’s emissions have also been a major contributor to.
Crisis in the Insurance Industry:
As a result of increased storm damage risk in Louisiana, many insurance companies have been forced out of the state or have fled, resulting in increased insurance premiums. After the 2020-2021 hurricane season, which saw over $23 billion in claims, 12 insurance companies were declared insolvent from July 2021 to February 2023, and a dozen more voluntarily withdrew. Of the remainder, more than 50 companies have ceased writing new policies in hurricane-prone parishes. This is significant because homeowners are forced to rely on the state-run insurer of ‘last resort,’ Citizens, which is modelled to be more expensive than private insurance companies to avoid competing with them.
Due to decreased coverage from private companies, Citizens has seen a 214.1% increase in policies written and a 397% increase in total insured value in 2020-2021 alone. In the event of another major hurricane, even Citizens may not have sufficient funds to pay claims. Citizens’ rates have gone up on average 164% since Hurricane Ida, and in 2022, 12% of homeowners did not have homeowners’ insurance at all. Since January 2023, Citizens was approved for another 63% increase in premium rates. If another major hurricane were to hit Louisiana, the state may not be in a position to be able to financially recover.
Environmental Racism in Louisiana:
The intersection between the distribution of vulnerability and rising insurance rates demonstrates the environmental racism present in Louisiana. In 2005, when Hurricane Katrina became the most expensive hurricane in United States history, of the seven zip codes that experienced the costliest flood damage, four had populations of at least 75% Black residents. After the hurricane, Black residents were less likely to come back to the city of New Orleans because they experienced higher rates of severe housing damage. This is largely because the city’s history of land development and segregation has resulted in Black neighbourhoods residing in lower-lying sections of the city with lower-quality drainage, making them more vulnerable to flooding. It is also worth noting that the overall infrastructure in New Orleans is inadequate for modern storm risks and is generally unable to keep up with the demands of current challenges.
In addition to Black residents incurring more damage, insurance companies also participated in a form of ‘redlining’ by targeting Black zip codes for low and inadequate insurance settlements, which further contributed an obstacle in the way of recovery for those who were most in need. The consequences of environmental degradation have fallen disproportionately on Black residents. The insurance crisis combined with increasing climate risks is making Louisiana economically uninhabitable, and it is disproportionately affecting low-income, majority Black populations.
Looking to the past- Hurricane Katrina:
Hurricane Katrina is a case study which can be extended to every major hurricane event in Louisiana, where Black and low-income residents hold a disproportionate risk, demonstrating how they also carry a greater burden in the insurance crisis. Many low-income homeowners choose to not carry homeowners’ insurance because they cannot afford it, however, some have insurance as a condition of their mortgage, and if they fail to make payments, they risk foreclosure and loss of their homes. This is shown through the homes built by Habitat for Humanity, a charity focused on building houses for low-income families to own. The New Orleans City Council has set aside $2 million in 2024 from federal pandemic funds to Habitat for Humanity to help prevent foreclosures. However, this does not solve the wider problem of environmental degradation and the insurance crisis; rather, it is a temporary fix.
Attempts at a Solution:
There have been many attempts from both the federal and the state governments to address the challenges faced by Louisiana and the wider Gulf Coast. In the spring of 2024, Republican Governor Jeff Landry signed four bills backed by the Louisiana Insurance Commissioner Tim Temple to loosen regulations on insurance companies, allowing greater competition, and hopefully lower prices. The looser regulations have been criticised for only helping the insurance companies increase profits and doing nothing for the people in need. An alternative method to approaching this crisis is to focus on the environmental threat. The Louisiana Coastal Master Plan is revised every 6 years, most recently in 2023, and lays out how the state plans to restore the coast. This includes marsh creation, risk reduction, water diversion, and other strategies to reduce flood risk to Louisiana residents.
Concluding Thoughts:
Much more needs to be done to address the environmental crisis in Louisiana. The problems in the insurance industry are the latest warning signs that indicate Louisiana is going to be uninhabitable if nothing changes. The state is becoming economically uninhabitable, particularly for low-income and Black populations, but eventually, these issues will affect everybody. The state must turn its eyes to the effects that the oil and gas industry has on the marsh and the global climate to address the root cause of hurricane risks.
Insurance companies have shown that they cannot afford major disasters like the 2020-2021 hurricane seasons. As more insurance companies leave the state, more risk is taken on by fewer companies, making them more likely to succumb to future multi-billion-dollar events. While combatting high premiums is important, it is only one piece of the overall picture. Insurance companies are not the only party to blame for the problems Louisiana faces today. To ensure Louisiana’s future, the oil and gas industry needs to be held accountable, and efforts must be taken to protect Louisiana from environmental risk. So long as risk persists in the state, the cost of insurance will continue to rise. Surging insurance premiums are a symptom of a major environmental crisis in Louisiana that is not easily solved. Insurance companies may not be to blame for attempting to manage risk with increased premiums, but these costs may be the last straw for many Louisiana residents and a cautionary tale for other communities at risk of more frequent and more powerful hurricanes driven by the changing climate.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.
Image Rights: Helen Street