Gov. Blanco Wants Overhaul for Louisiana’s ‘Last Resort’ Insurer

Louisiana’s Legislature needs to overhaul the Louisiana Citizens Property Insurance Corp., created by the state as an “insurer of last resort,” because of problems created by last year’s hurricanes, Gov. Kathleen Blanco said Nov. 14.

Citizens’ financial woes have led the company to sell $1 billion in bonds to pay off claims stemming from hurricanes Katrina and Rita. To repay that debt, Citizens assesses fees on private insurance companies that are passed along to homeowners around the state, even those who aren’t Citizens customers. Citizens has asked for a major rate hike – at least doubling its homeowners’ policy costs along the coast, but a decision on the request is likely to be postponed.

Blanco said the 2003 law that created the quasi-state firm is outdated and needs to be changed.

“I think that we should rethink the whole way that Citizens is designed, and I’m asking for and think I’ll be getting some creative suggestions from our legislative leaders and others,” Blanco said in an interview. “We have to spread risk. Citizens should not be the biggest insurer in Louisiana, and the way we’re going, it’s just about there.”

The number of Citizens policyholders has swelled since hurricanes Katrina and Rita, as other firms stopped writing policies and individuals needing coverage were left with few other options. That puts a greater burden on the state-run insurance company and a greater risk.

Citizens’ growth is expected to continue next year, with the expiration of a consumer protection rule that restricted insurance companies from dropping policyholders. Thousands could have their policies dropped after Emergency Rule 23 expires if their hurricane-damaged homes have not yet been repaired; most will be forced to get insurance from Citizens.

Blanco said she wants to change or do away with a law that requires Citizens to charge more for policies than private insurance firms.

“In the current conditions, I’m not sure that Citizens should be forced to do that,” she said.

Blanco said she may seek changes to the law in a special session in early 2007, when she also wants the Legislature to refund to homeowners the insurance hikes caused by Citizens.

The state Insurance Rating Commission, scheduled to meet Nov. 15, was expected to postpone its decision on whether to approve Citizens’ proposed rate increases because the panel’s actuaries have not determined whether all the changes were calculated properly.

The vote will likely take place next month, said Chad Brown, chief deputy to Insurance Commissioner Jim Donelon.

If Citizens wins approval of the change, costs for the group’s 135,000 residential policyholders would rise by a combined $60 million. The firm’s 135,000 policyholders statewide would see rates jump, on average, by 31.7 percent.

Rates could more than double along the coast – though many homeowners in north Louisiana would likely see their rates decrease.

Citizens, currently the third-largest insurer in the state, also is seeking:

-A statewide rate hike, on average, of 68 percent for homeowners with wind-only coverage.
-A statewide average increase of 130 percent for commercial policies.

Citizens is the latest insurance firm to seek rate hikes as a way to offset billion-dollar losses incurred from the 2005 hurricanes. Last month, Farmers Insurance Exchange won approval for a similar plan that will double homeowners rates along the coast next year.