La.’s ‘Last Resort’ Insurer Target of Numerous Complaints

Hailed as a means of saving Louisiana’s foundering insurance industry when it was formed two years ago, a state-created insurance company is being slammed by policyholders and an advocacy group for its alleged unresponsiveness following Hurricane Katrina.

“It seems like the policy holders are being kind of universally ignored and unable to get any response at all,” said Joanne Doroshow, executive director of Americans for Insurance Reform.

The company is Louisiana Citizens Property Insurance Corporation, created in 2003 as a state-sanctioned “insurer of last resort” providing homeowners insurance to those who couldn’t get it on the open market.

LCPI chief executive officer Terry Lisotta said a major reason for the problems has to do with a change in companies who run the program. Audubon Insurance was the initial administrator. But LCPI put the job up for bids earlier this year, eventually awarding the contract to three companies: MacNeill Group, Bankers Insurance Group and First Premium Insurance Group. But Audubon and another bidder challenged the decision in court.

“We won,” Lisotta said. But the litigation resulted in a delay in the changeover at perhaps the worst possible time–after Katrina hit. Audubon had been gearing down in anticipation of ending its relationship with LCPI he said.

Margie Dotson, whose home in St. Bernard Parish was devastated by Katrina flood waters, said she tried 12 different telephone numbers in an attempt to get her claim taken care of and has been bounced from one number to another with conflicting information on who is to handle her business. “It’s just basically the run-around,” she said.

New Orleans resident Toni Swain Orrill filed an Oct. 6 lawsuit against Audubon, its parent company, AIG Inc., saying policyholders were not provided with any effective way for policy holders to contact the company, initiate claims or receive emergency payments.

An AIG spokesman said the company does not comment on pending litigation. Lisotta also declined comment on the lawsuit but said he does not blame Audubon or AIG for the post-Katrina complaints, since they had been preparing to end the relationship with LCPI. “It’s not their fault,” he said.

Another problem possibly contributing to communications problems is the failure of companies and agents who want to do business with LCPI to properly register on the company Web site, Lisotta said.

State lawmakers approved legislation establishing LCPI in 2003 when a major issue was the lack of availability of affordable homeowners insurance in the state. State Insurance Commissioner Robert Wooley has said creation of LCPI was one of several recent reforms that have brought more insurance providers into the state for low-value, coastal dwellings.

Creation of LCPI was pushed in 2003 by insurance industry leaders who said at the time that one of several reasons for the dearth of policy writers was the risk entailed in Louisiana by the then-existing last-resort insurers–the FAIR and Coastal plans. When those plans experienced big losses, other companies in the state were assessed to help cover the damages. The assessments had to be paid within 30 days and regulators could prevent the companies from passing the costs on to their ratepayers. It was a risk few companies were willing to take, especially in hurricane-vulnerable Louisiana.

LCPI took over the FAIR and Coastal plans and was allowed to build up reserves tax-free, an advantage the old plans didn’t have. And, in the event of a disaster where damages outstrip reserves, as is the case with Katrina, LCPI can sell bonds to pay off the claims and pay the bonds off gradually, assessing the private companies a monthly fee that can be passed onto customers.

That is expected to happen in the coming months. Katrina is expected to cost LCPI more than $900 million in damage claims and related expenses. Existing reserves, premiums and reinsurance policies will take care of some of that, but close to a half billion dollars will still have to be covered through borrowing that will have to be covered by other companies and, most likely, by their customers. Lisotta said the companies could raise rates by as much as 20 percent, although some may choose not to.

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