After a series of storms devastated Louisiana in 2020 and 2021, many insurance providers fled the state. Due to a heavily regulated market and high-risk climate, these insurers never returned. As a result, Louisiana is the third most expensive state for homeowners insurance, with many residents relying on the insurer of last resort, Louisiana Citizens, for coverage.

In a new report for the Pelican Institute, Christian R. Cámara, a Senior Fellow of the James Madison Institute, looks to the example of Florida, a similarly storm ridden state, for a path towards a consumer-focused and competitive insurance market in Louisiana. Camara writes that, while any solutions to the present insurance crisis will come with some costs, strategic free market reforms will prevent the even higher bill that subsidized insurance ultimately brings.

The report outlines four guiding principles for lawmakers and regulators who want to restore the Louisiana insurance market instead of following the unsuccessful Florida model that socialized insurance and hurt both insurers and the insured.

  1. Enable risk-based pricing. “Price should reflect risk,” Cámara writes. “Louisiana lawmakers should therefore resist the impulse to expand insurance subsidies or otherwise artificially suppress rates (for example, by imposing rate caps on Louisiana Citizens) and instead focus on ways that the state can help low-income residents reduce their risk exposure.”
  2. Tackle factors that unnecessarily inflate insurance losses. Cámara notes that, in order to encourage a competitive insurance market, lawmakers must address frivolous litigation and work to promote market predictability through “clearly defined timeframes, sunsets, or automatic circuit breakers that trigger phase-downs (or ramp-ups) based on objective variables so they are not contingent on inherently unpredictable future legislative action.”
  3. Restore predictability. Cámara advises Louisiana to ensure that any temporary stop gap measures are done methodically with clearly defined timeframes, sunsets, or automatic adjustments based on objective variables.
  4. Promote regulatory reliability to ensure that insurance products fulfill promises to consumers. “Lawmakers and the newly elected insurance commissioner must reevaluate the Louisiana Department of Insurance’s practices as they relate to regulating, analyzing, and determining the financial health of insurers,” the author encourages. One method of ensuring regulatory reliability is to encourage innovation through insurance sandboxes, which allows insurers to test new approaches with a temporary exemption from restrictions.

With these guiding principles in mind, Louisiana can avoid the pitfalls of the overly regulatory Florida route and ensure that Louisianians have good coverage at a reasonable price.