Breaking Point

Tessa Jackson is giving serious thought to fleeing New Orleans.

Since Hurricane Katrina, the Broadmoor resident’s homeowners insurance company has raised her premium every year. Before the storm, she paid about $1,500 a year. This year, she’s paying $6,072, a 300 percent increase.

Each month, homeowners insurance costs her about $500.

The 40-year-old developer and real estate investment trust program manager says escalating homeowners insurance rates are a major factor in why it has become too expensive for her to stay in New Orleans.

“I need a new car. I can’t afford one. I can’t make enough money to cover my expenses. My expenses in D.C. were cheaper than this when I lived there post-Katrina,” Jackson said. “I’m at my breaking point with this.”

She’s not alone.

Nearly four years after Katrina, complaints persist about high homeowners insurance rates in the New Orleans area.

Greg LaCost, assistant vice president for Des Plaines, Ill.-based Property Casualty Insurers Association of America, an advocacy organization for the insurance industry, said Louisiana is the third-most expensive state for homeowners insurance behind Texas and Florida.

State Insurance Commissioner Jim Donelon said rates have stabilized since Katrina partly because new insurers are creating competition among the companies.

In 2006, the statewide average homeowners insurance rate rose 12.5 percent, he said. Last year, the increase was 3 percent. For the first half of 2009, the increase was about 5 percent.

“We are seeing a flattening of rates but not a decrease,” Donelon said. “They are not below pre-Katrina levels, and we’ll never be, to be honest.”

Donelon points to the state’s property insurance provider of last resort, Louisiana Citizens Property Insurance Corp., for proof that rates have fallen in some areas. By state law, Citizens must charge more than insurances companies so it does not take away their policies.

Citizens’ rates increased throughout the state this year, but some places, such as Orleans Parish, saw rate decreases because of competition among insurance companies, he said.

Dean Basse, general manager for Dan Burghardt Insurance Agency in Metairie, said some insurance companies don’t want to insure parts of the New Orleans area, so they are overcharging in hopes of scaring off potential customers.

New Orleans-area homeowners insurance rates are between 100 percent and 400 percent more than before Katrina, he said.

“For certain areas, they’re way out of whack,” Basse said.

Some insurers are pricing their rates just below Citizens’ rates, he said, but Citizens CEO John Wortman said those insurers are not price gouging. They are offering sound rates, which state insurance regulators must approve, he said.

“The (state’s) insurance department charges that they can’t be excessive,” Wortman said. “It’s a fairly rigorous check by the regulators in terms of rate filings. They can’t just charge what they want to charge. If they were hosing the public, they wouldn’t approve them.”

LaCost said some homeowners might not want to hear it, but property insurance rates were artificially low before Katrina and Hurricane Rita.

“It is an expensive place to write in Louisiana,” he said.

Basse agrees. Rates in many areas “were totally unrealistic before the storm,” he said.

Donelon said Louisiana poses less risk to insurance companies today than before Katrina and Rita because levees have been upgraded and houses have been made sturdier.

“And that’s a selling point that I trumpet wherever I go,” he said. “We are indeed a much, much better risk today for a company wanting to do business in Louisiana than we were four years ago.”

Donelon said he is disappointed more “name brand” insurance companies aren’t writing policies in Louisiana.

LaCost praised steps Louisiana has taken since the 2005 hurricanes, such as the adoption of building codes that require homes to be more hurricane-proof. But some post-Katrina improvements, such as levee enhancements, have less impact on homeowners insurance policies, which cover wind damage but not flooding, he said.

But as long as homeowners insurance rates are high, real estate experts say they will negatively impact the housing market.

“The increased cost of insurance is affecting homeowners’ ability to buy and how much they can buy,” said Rick Haase, general manager of Metairie-based Prudential Gardner Realtors.

Haase said one homeowner whose insurance premium was $1,200 before Katrina had to pay $3,800 last year. The $2,600 difference equates to about $216 more per month in insurance payments, he said. Such an increase would reduce a homebuyer’s buying power by $36,000, he said.

Homeowners insurance is making it too expensive for some in the area to afford an entry level home, he said.

Jackson said people are underestimating the hardships insurance rates are creating for people in the region. If her rate rises again, she said she will have no choice but to leave.

“I can’t do this,” she said. “This is absolutely ridiculous.”•