Ala. storm mitigation program offers template for La. insurance market

An Alabama program designed to fortify homes against potential storm damage is providing a template for Louisiana insurance regulators as they seek to strengthen the state’s flagging homeowners insurance market.

An initiative called Strengthen Alabama Homes distributes grants to state residents to help pay for wind mitigation on “existing, owner-occupied, single-family homes,” according to the program’s website, which defines wind mitigation as using “construction methods that strengthen a home against severe storms, high winds and wind-driven rain.”

Louisiana Insurance Commissioner Jim Donelon said in an interview that the state has authorized a grant program based on Strengthen Alabama Homes, which was initiated in 2011. The Alabama program has been “incredibly successful” in getting fortified roofs for over 30,000 homes in the state, Donelon added.

Brian Powell, director of the Alabama program, said he has been working with officials at the Louisiana Department of Insurance who have copied the program “almost verbatim.”

“The legislation and most of the processes that they will use came from Alabama,” Powell said in an interview.

Maximizing mitigation

The adoption of the Alabama model comes on the heels of the Louisiana department obtaining $45 million in funding from the state legislature for the Insure Louisiana Incentive Program. The program provides grants of between $2 million and $10 million to eligible insurers in order to revitalize the property insurance market in the Pelican State and reduce the growing volume of business written by the Louisiana Citizens Property Insurance Corp., the state’s insurer of last resort.

The program was established in 2011 after the 18-hour super tornado outbreak on April 27, 2011, that killed 240 people and destroyed over 14,000 homes. The entire outbreak, which lasted April 22–28, affected 26 states and caused $9.68 billion in insured damages based on 2022 dollars, according to the Insurance Information Institute.

Powell said Strengthen Alabama Homes was developed from 2011 into 2013, when the department started piloting the program. Two years later, the first grants were issued.

Insurers’ support

Rather than dip into the state budget, the program is funded by a portion of the fees collected from the insurers writing business in the state. When Alabama officials approached insurers with their proposal, their goal was to sell carriers on how funding the program would benefit them.

Powell said there was evidence that showed how mitigation not only reduced insurers’ risk pool but also made their reinsurance rates more negotiable once they developed a book of business involving homes using these mitigation techniques. Insurers were persuaded by that argument and supported the plan using a portion of the fees collected for premium tax, licenses and other items, he said.

The Strengthen Alabama Homes project was based on the FORTIFIED Home program developed by the Insurance Institute for Business & Home Safety. FORTIFIED focuses on a list of construction upgrades that strengthen existing roofs to help protect homes from severe weather.

Applicants approved for the program receive grants to cover 100% of the cost of mitigation up to $10,000. Policyholders owning homes strengthened under the FORTIFIED program receive discounts on the wind portion of their homeowners’ insurance premiums, which Powell said can be 60% to 80% of the total premium.

“When you’re able to receive a discount of 30% to 40%, you’re almost effectively cutting your insurance in half in some cases,” he said. “So, when you realize you’re on the Gulf of Mexico in direct line of hurricanes, that would be a significant premium that you would have to pay.”

Interest in La. incentive program

As of Feb. 23, 10 insurers have expressed interest in participating in the Insure Louisiana Incentive Program and the department is now receiving applications, according to a department email to S&P Global Market Intelligence. Once the application window closes, the department will expedite the review process and prepare to present grant recommendations to the Joint Legislative Committee on the Budget in March.

Commissioner Donelon said when he sent invitation letters to insurers regarding the program, he wanted to know how much money they wanted from the grant fund and what their plan is that would justify them receiving the grant under the program.

“I would like to see their intention relative to depopulating Citizens more than was able to be done recently,” said Donelon, who added that while the incentive fund was “certainly the first step,” the fortification effort based on Alabama’s plan is “the long-term solution to our problem. You need to minimize the loss.”