More Louisiana Property Owners Move to Private Insurers

Fresh data shows Louisiana’s insurer of last resort keeps churning away on getting private insurers to pick up policyholders, a problem largely stemming from the 2005 hurricanes.

For policyholders of Louisiana Citizens Property Insurance Corp., the wait to go private is expensive and frustrating. There’s no guarantee that some will ever get back to private coverage.

At its height in 2008, Citizens had 164,000 home policies and 10,000 commercial policies on property no private insurer would cover.

Rita Ferrara, a 58-year-old New Orleans legal secretary, said moving to a private insurer can’t come quickly enough.

She said her insurer dropped her after Hurricane Katrina struck in August 2005 – despite minimal damage to her house – and premiums have skyrocketed under Citizens. Just covering her deductible – if the time comes – is a major worry.

“My fear is that if a hurricane or even a strong wind comes through and blows the roof of my house off, I don’t have the backup finances to pay for property damage,” she said.

Late in 2011, Citizens moved almost 11,000 homeowner and commercial policies to private insurers, a process it calls “depopulation.” That leaves about 105,000 home policies and 5,500 commercial business policies under the Citizens umbrella where rates – as mandated by state law to keep Citizens from competing with the private market – must be 10 percent higher than the highest premiums charged by private insurers.

Many of the shifted policies went to 11 insurance companies that started covering Louisiana properties over the past four years.

“These companies, by and large, offer the same coverage at a reduced premium,” Citizens chief executive Richard Robertson told The Associated Press.

So far, private insurers have assumed $123.7 million in annual premiums covering $13.2 billion in insurable property. Florida-based Southern Fidelity Insurance Co. has taken over the most policies – 26,951 – followed by Montana-based Lighthouse Property Insurance Corp. with 18,088, according to Citizens.

“Typically, the depopulation companies are new in the state and want to have a book of business” to attract other customers, Robertson said. “This is a way to do that in one fell swoop.”

Companies taking over Citizens’ policies must have a rating from A.M. Best or a comparable ratings agency of at least B-plus.

“The curse is that these companies want to write in the state of Louisiana,” Robertson said. “They just don’t want to write too much business where they might suffer heavy losses.”

For example, Robertson said some of the new insurers, in building their Louisiana business, might not want more than a specific percentage of their policies coming from south of Interstate 10 – the typical line separating the rest of the state from the storm-vulnerable south.

Citizens’ policyholders involved in the latest round were told which company had assumed their coverage in late November, with the new company taking responsibility for claims filed beginning Dec. 1. Policyholders can return to Citizens by Jan. 31 if they are unhappy with the company that agreed to insure them. Robertson said that, typically, less than 5 percent of policyholders return to Citizens once they leave. “One of the positive things is that once these policies go out, they stay out.”

Citizens is a nonprofit company created in 2004 – but not funded – by the state. If the company’s reserves funded by premiums face a deficit, Citizens can assess private property insurers up to 10 percent of the premiums, which are passed along to private policyholders. Policyholders can reclaim the rebates on their state income tax returns. In an emergency, an additional assessment of up to 10 percent can be ordered.

The next round of offerings to private insurers hasn’t been set yet, but Citizens chief operating officer J.J. Ramachandran said it likely would be late in 2012. Under that process, private insurance companies request policies they want to assume and insurance agents authorize the policies that will be assumed.

While there is has been progress in getting companies to take Louisiana policyholders, it’s unlikely an insurer of last resort is going away in hurricane-vulnerable Louisiana.

Ramachandran said 80,000 to 85,000 policyholders probably always will be bound to Citizens.

Another devastating storm could push some insurers out of the state, Robertson said.

One thought of some comfort, though, is that billions of federal dollars have been poured into strengthening levees and other flood protection in the most vulnerable areas of south Louisiana. In theory, the investment lessens the likelihood of a repeat of Katrina which flooded 80 percent of New Orleans when levees collapsed.

“If a Katrina hits again, my head tells me the damage won’t be as severe,” Ramachandran said.

Citizens is reviewing homeowner rates, as required on an annual basis, Robertson said. The company raised homeowner rates an average of 6.5 percent – about $127 per policyholder in July 2011 – and commercial customers are facing a 22.1 percent increase – about $700 per policyholder – in February.

Ferrara said aggravating the cost of basic homeowner coverage is that since Katrina, her federal flood insurance has gone from about $360 a year to just over $1,000. About 80 percent of the New Orleans region was hit by floods after levees broke following Katrina.

“Between property insurance and property taxes, I can’t afford my property,” she said.