A recent Insurance Research Council brief revealed Louisiana as the least affordable state for auto and homeowners insurance, attributed to a combination of factors, including frequent natural disasters, challenging economic conditions and a unique litigation environment within the state.
According to the IRC, which operates under the auspices of the Insurance Information Institute, Louisianians are burdened with a significantly higher share of their income going towards personal insurance. Data from 2020 highlights showed homeowners in Louisiana spend 3.84% of their median income on insurance---nearly double the national average of 1.94%. The situation is not much better in the personal auto insurance sector, where Louisiana leads the country with expenses amounting to 2.93% of income, compared to the U.S. average of 1.55%.
Dale Porfilio, IRC president and chief insurance officer at the Insurance Information Institute, shed light on the root causes of the affordability crisis.
"Multiple cost drivers are at play here," Porfilio said. "We're seeing escalating auto repair and construction costs, coupled with claims litigation and the state's relatively low household income, severely impacting affordability."
Porfilio also noted the consequential impact on the insurance market, with several carriers facing insolvency and others choosing to exit the Louisiana market altogether. Those remaining are left with little choice but to limit coverage options and increase premiums.
While the IRC's analysis offers a comprehensive overview of personal insurance affordability for Louisiana's population, it does not delve into demographic or geographic risk profiles. Additionally, the data used in the study, extending only up to 2020, does not account for more recent hikes in personal insurance rates.
The study identifies several cost drivers pushing Louisiana's insurance rates above the national average. In the realm of personal auto insurance, factors such as accident frequency, rising repair costs and the prevalence of uninsured motorists contribute to the state's high rates. Homeowners insurance is similarly affected by both catastrophe and non-catastrophe claim frequencies, weather risks and litigation claims.
Porfilio pointed out the significant role of attorney involvement in personal insurance claims in Louisiana. "The state sees a remarkably high rate of litigation in personal auto claims, more than double the national average, and only second to Florida," he said. "For homeowners claims, the likelihood of involving litigation is more than 12 times higher compared to other states, excluding Florida."
