Post-hurricane homeowners perspective: change coming to Louisiana

A year ago, many home insurers in southern Louisiana refused to write new policies, or left vulnerable coastal community markets in fear of potential losses occurring from future storms. Many companies stopped writing to handle claims still lingering from the previous year’s storms and homeowners were forced to turn to Louisiana Citizens Property Insurance Corp., the state’s insurer of last resort.

According to Jeff Albright, CEO, Independent Insurance Agents & Brokers of Louisiana, not much has changed, “It’s still pretty tough in the southern most part of the state and the greater New Orleans area.” He said insurance companies appear to be waiting for the expiration of Emergency Rule 23, which requires them to maintain coverage on properties damaged by the storm. “Obviously that means that they are holding on to a lot of very difficult risks and I think that companies are not looking to add a lot of risk exposure at this point,” Albright said.

Set to expire on Dec. 31 of this year, ER 23 was adopted due to a shortage of building materials. Contractors, construction workers and many policyholders who received claim payments were unable to repair or reconstruct their property within normal time frames because they couldn’t find materials. In many places it would be months or years before property could be repaired or reconstructed.

In light of the materials shortage, section 4307 of ER 23 called for a cancellation suspension whereby insurers, surplus lines insurers or any other entity regulated by the insurance commissioner are prohibited from canceling or nonrenewing any personal or commercial property insurance policy covering a dwelling located in Louisiana that sustained damaged as a result of Hurricanes Katrina or Rita or their aftermath.

The prohibition stays in place until 60 days after the substantial completion of the repair and or reconstruction of an affected property.

Additionally, ER 23 said Citizens needed sufficient time to prepare and place insurance products on the open market to provide–in the opinion of the commissioner–adequate insurance to citizens.

Without the authority to suspend and or enforce certain statutes in the Louisiana Insurance Code, including but not limited to, cancellation and nonrenewal with regard to all property insurance, the commissioner claimed he was hindered in the proper performance of his duties and responsibilities regarding a state of emergency.

“The bad news is that some people who have not repaired their property are probably going to lose coverage and be forced to try to get builders’ risk coverage,” said Albright. “If they are not making repairs then that property will probably go uninsured.”

But the good news, according to Albright, is that once insurers are able to reduce some of their risk exposure on all those damaged properties under ER 23, some companies will then begin to start looking at possibly writing some new risks. “The Big ‘I’ of Louisiana hopes this happens when ER 23 expires in December,” he said, “and we’re getting some indications it will. Until then, it’s wait and see.”

Citizens reported 121,441 policies currently in force, down from 136,452 in the first quarter. The Louisiana Department of Insurance said that amount equaled 7.6 percent of the overall market share in Louisiana. Only two companies have a higher homeowners market share than Citizens: State Farm with 30.9 percent and Allstate with 18.2 percent.

The amount of premium written by Citizens in the second quarter was a reported $14.6 billion. At the second quarter 2005, Citizens had 129,966 policies in force, equaling $14 billion in premium. Compared to second quarter 2004–13,888 policies representing $1,227,015 in premium–the last two years drastically differ from 2004 for Citizens.

Warren Byrd, executive counsel, Louisiana Department of Insurance, was optimistic and said nine new carriers came into the market this year already. “We had some new carriers add a line and we think that’s a tremendous indication that carriers realize Louisiana is going to be built back stronger and better with a viable market.”

He explained that the state’s light hurricane season also helped to relieve the market and the fears that followed Katrina and Rita, “The bottom line is that we’ve made it through the season and that’s a real plus for carriers. … This has been a nondescript fall season here in Louisiana for hurricanes and we hope we are back to the typical norm.”

Byrd urged agents and brokers to work with insureds in the process of trying to finalize repairs on damaged homes. “The sooner they can get those repairs done, the sooner they can place new insurance or get the insurance renewed as a repaired and inhabitable dwelling.”

In large part, he said, it’s getting done. “The vast number of homes that were repairable have been done or are well underway in that process with 90 days to get finished,” he said.

Byrd said a gap exists between rebuilt homes and those totally devastated and no longer around. “In many cases they will have to wait until the elevations are set before they can begin to rebuild.”