Before the Flood: Reducing Louisiana’s Vulnerability to Severe Weather Through Market-Based Insurance Reforms
Louisiana’s unique coastal vulnerabilities will require the state to pursue sensible free-market reforms to its insurance markets and built environment to avoid catastrophic costs in the decades ahead, according to a new Pelican Institute report authored by R Street Institute Senior Fellow Ian Adams.
Projections from state and federal officials estimate the state can expect 30 to 40 hurricanes over the next century with annual flood-related losses of between $7.7 and $23.4 billion. Due to a variety of trends – including natural tectonic subsidence, human development and rising sea levels, it is estimated that Louisiana’s Southeast corner may be submerged beneath at least 4.3 feet of water by the end of the century.
Given that backdrop, unless steps are taken to stem the development of vulnerable residential and industrial sites, losses could be overwhelming, Adams argues. He points in particular to distortions in the state’s insurance market that encourage building in risky areas, including rules limiting insurers ability to cancel policies; the sheer size of the state-run insurance authority, Louisiana Citizens Property Insurance Corp.; excessive controls on insurers’ ability to raise rates to reflect risk; and the impact of the subsidized coverage offered by the federal National Flood Insurance Program.
Among the solutions outlined in the paper are reforms to move the state to a modified flex-rating system of insurance rate controls; expansion of tax credits and abatements for property owners that invest in risk mitigation; and plans to invest funds the state expects to receive through the federal RESTORE Act in wetlands restoration and other durable projects to reduce Louisiana’s vulnerability.