When hurricanes Katrina and Rita barged ashore in 2005, they left the wake of destruction with which we are all intimately familiar. However, in addition to leveling towns and inundating communities with flood water, it dealt a blow to insurance in the state of Louisiana.
Many insurers have pulled out of the state altogether and those that remain are restricting which customers they'll accept and changing how they are willing to insure. Allstate, for example, is no longer writing wind and hurricane coverage and State Farm has all but stopped accepting new customers.
The FAIR (which means Fair Access to Insurance Requirements) plan is the state's insurer of last resort. In the past, that meant those homeowners who had very poor credit, a history of excessive claims, or a very high-risk property could turn to the FAIR plan for coverage. In the interest of not competing with privatized insurers in the state, it is written into law that FAIR coverage is to be significantly more expensive than the more traditional insurers.
How much more expensive? A lot. The law states that premiums must "exceed by at least ten percent the rates charged among the ten insurers with the greatest total direct written premium in each parish for that line of business in the preceding year". On average, though, customers are paying about three times what they would in the private sector. In return, they receive inferior coverage and the almost inevitable red tape of any bureaucracy if there is another crises like those of 2005.
The problem, as I see it, is that the FAIR is no longer merely the insurer of last resort; it is quickly becoming the insurer of only resort for many Louisiana homeowners and prospective buyers. I believe that the price disparity should be decreased in order to make home ownership more affordable. If traditional insurers do not like the decrease, then they need to be willing to write more policies in coastal areas.
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