I.I.I.: Claims in La. Equal to 25 Years of Premiums

The record total of homeowners insurance claims payments resulting from the 2005 hurricanes in Louisiana is enough to wipe out all homeowners premiums paid in the state during the past 25 years, as well as every dollar of homeowners insurance profits ever earned there, the Insurance Information Institute (I.I.I.) reported.

The magnitude of the loss will force a fundamental reassessment of risk in Louisiana by insurance companies. As a result, homeowners insurance could become more costly and less available there.

Homeowners insurers are ex-pected to pay $12.4 billion in claims from Hurricanes Katrina and Rita, an amount equal to all homeowners insurance premiums paid in the state since 1981 and nearly 13 times the estimated $969 million in homeowners premiums paid last year. Residence insurers in Louisiana have earned only $17.3 million in profits, including investment income, since 1985.

In Louisiana, insurers will pay an estimated $10.9 billion on 695,000 homeowners claims from Hurricane Katrina and $1.5 billion on 130,000 homeowners claims from Hurricane Rita, according to ISO.

Overall insured catastrophe losses in 2005 exceeded $55 billion, a new record. The majority of those losses occurred in Louisiana and Mississippi. Hurricanes Katrina, Rita, Wilma and Dennis resulted in a total of approximately three million claims.

Following these catastrophes, “risk is heightened and premiums must rise to more accurately reflect that risk,” said Dr. Robert Hartwig, chief economist of the I.I.I. He noted that, “insurers may also limit the number of homes they are willing to insure in coastal areas until the reassessment process is complete. This would increase the number of homeowners who will need to seek coverage through Louisiana Citizens Property Insurance Corporation, the state’s insurer of last resort.”

Hartwig explained that insurance rates in Louisiana are based on individual insurer experience in the state. “Profits from other types of insurance in other states-auto insurance in Illinois for example-cannot be used to subsidize hurricane-related losses in Louisiana,” he said.