A year after Katrina, commercial property market ‘bleak’ in New Orleans
Placing of business is harder than it has ever been, agent says
We insure a business in French Quarter in New Orleans which was unaffected by the flooding from Katrina and for the most part had fairly limited windstorm damage,” said Parke Ellis, a principal with Gillis, Ellis & Baker (GEB), a 73-year-old, third generation insurance agency based in downtown New Orleans. Before Hurricane Katrina hit, Ellis says, his client, with property valued at around $4 million, “had a $17,000 premium and a $25,000 wind and hail deductible. They had minimal damage from Katrina and their renewal premium is up to $82,000 with a $400,000 deductible. Their response was, ‘I just don’t want to buy windstorm insurance. Why should I if the worst storm we’ve ever had caused me minimal damage? And you’re telling me I have to hit a $400,000 threshold–I’ll go without it.’ Which scares me to death but that’s how clients are reacting.”
Ellis explained that when it comes to describing the commercial insurance market in New Orleans, some 14 months after Katrina hit in late August 2005, the word he uses with his clients is “bleak.” He noted that since Aug. 29, 2005, his company has not placed any new business that has not had wind excluded altogether “or had deductibles so high they were almost unaffordable to our clients.
“We have written since Katrina more new business than we’ve written at any time in our agency’s history,” he continued. “But the placing of that business is 10 times harder than it’s ever been. I would tell you right now that for the most part we do not have a windstorm market, a viable windstorm market, in South Louisiana.”
He said most of the commercial quotes his agency gets back exclude wind and hail, and the only alternative is to go to Louisiana Citizens Pro-perty Insurance Company, the state’s wind and hail market of last resort, for a stand-alone wind and hail policy with a 2 percent deductible.
For the most part, Ellis said, insurance companies are willing to renew existing commercial business, with a few exceptions, but deductibles are rising from 1 or 2 percent up to 5 percent. “For a firm that has $10 million in property insurance in New Orleans–and that’s not that unusual–it’s a $500,000 deductible [for wind and hail].”
New business is a different story. “Where you used to be able to go to a standard market and have them write the property, the GL, the workers’ comp, the umbrella, etc., [companies] have pretty much folded their tents on new business,” he said. “While they are supporting us on renewal business, a lot of them have said they cannot take on anything new in the way of property insurance.”
Asked if there was any light at all at the end of the tunnel, Ellis said he’s recently heard, for the first time since Katrina, brokers talking of the possibility that some surplus lines companies are “looking to put their toe back in the water.”
As of the end of October, with one month left in the hurricane season, the feeling is that southern Louisiana is likely to get through the relatively mild 2006 hurricane season unscathed. Ellis said the lack of catastrophe losses might be an incentive for companies to enter or re-enter the Louisiana market, but he’s skeptical at this point.
“Rates are so high that the feeling is if they can get rates for the exposure they can operate profitably down here,” Ellis said. “I’ll believe it when I see it. Because I think it’s going to take some time. We’ve been hearing for a while companies are going to come back after we get through hurricane season, but we don’t see them lining up yet to do that. I couldn’t point my finger to any one company and say this one is already committed to coming in and this one is thinking about it. It’s all hearsay at this point.”
What will it take?
In order to get companies interested in New Orleans again, Ellis said, the city needs to “prove a couple of things to the insurance industry. I think foremost in their mind is–have we gotten our levee systems to a point where they can be trusted.” After the levees and the coastline, he believes the city and state need to prove they are serious about enforcing more stringent building codes.
Ellis said a lot of insurance companies paid claims after Katrina where a large part of the damage was caused by flooding, claims that otherwise would have been excluded in the property policy. “But I think in the sense of fair play–and a lot of clients would disagree with this–I think a lot of companies really stepped up and paid claims they might have been able to argue out of.”
He added that although the industry paid significant amounts for windstorm losses, “in large measure what happened to this city was more flood than wind. A lot of the older homes in this city withstood the winds. We have a lot of new roofs, don’t get me wrong, but the building structures were fine.”
A newfound expertise
Ellis said one interesting thing to come out of the storm is that commercial clients are newly educated on the types of insurance they need. He said his team is giving the same kind of advice to clients as they did before Katrina, in terms of the types of insurance their commercial accounts should carry. But the difference is clients “have become experts now–they know what to ask for.”
He said he’s amazed at how many people call and say, “‘Tell me about business interruption, tell me about civil authority coverage … tell me about off premises power failure, tell me about excess flood coverage.’ The long and short of it is that most of those coverages that were so important during the storm, for new accounts are not readily available right now. You can’t buy excess flood very easily, you can’t buy off premises power failure … because we were hit so hard.”