Hurricane Isaac appears to be a "fairly significant event" for Louisiana Citizens Property Insurance Corp., but the group should have enough resources on-hand, reinsurance and other means to cover claims, the group's chief executive said Friday. Richard Robertson, chief executive of the state-sponsored insurer of last resort, which sells homeowners insurance to the many people in Louisiana who can't get coverage on the private market, said that Citizens has already taken about 2,700 claims, and expects many more when electricity is restored and people return from evacuations.
"I think it's going to be a fairly significant event, but the reality is, it's way too early to assess the impact," Robertson said.
Citizens, which is one of the state's largest insurers with about 115,000 policies, provides coverage for many people in coastal parishes and in areas below the Intracoastal Waterway where many private insurers won't sell policies.
But while damage from Isaac is significant, with some early forecasts from computer modeling companies putting the damage at $500 million to $2 billion, it doesn't appear that the storm will be catastrophic for Louisiana Citizens.
One reason is that the major damage appears to be from flooding. Damage from rising water is not covered by homeowners insurance policies; it is covered by separate policies backed by the federal government through the National Flood Insurance Program.
The Federal Emergency Management Agency said it does not have any estimates of the number or cost of claims that it will receive from Isaac.
The other reason that Citizens does not expect Isaac to be a major event is hurricane deductibles. When hurricanes Gustav and Ike hit in 2008, Citizens did not have a special hurricane deductible; it only required policyholders to pay their regular $250, $500 or $1,000 deductible to access storm coverage.
Now, all policies come with a mandatory hurricane deductible. The minimum hurricane deductible is 2 percent, but for all policies south of the Intracoastal Waterway, the minimum hurricane deductible is 5 percent.
That means that many policyholders can expect to pay a chunk of change out of pocket. Many people take out a low-interest disaster loan from the U.S. Small Business Administration to cover the deductible if they don't have the money on hand.
With FEMA declaring Friday that it will offer individual disaster assistance to people in five hard-hit parishes, the SBA is likely to make loans available.
For Citizens, the hurricane deductibles will reduce the amount of money that it has to pay from Isaac.
After Hurricane Katrina, Citizens ran out of money and had to ask for an "emergency assessment" that was levied on all owners of insured property in the state of Louisiana. That cost was eventually transferred to back to the state, and therefore all taxpayers, when the Legislature allowed property owner to take a tax credit for what they paid in Citizens assessments.
Citizens is also in better financial shape than it was when Katrina hit.
Robertson said that Citizens has about $125 million in cash on hand. It is required to pay the first $75 million in claims on its own.
After that, reinsurance, meaning insurance coverage that Citizens bought to cover itself, kicks in and will pay the cost of claims between $75 million and $200 million.
After that, Citizens has another layer of reinsurance and something called a catastrophe bond, in which investors agree to pay Citizens if a storm strikes under certain conditions, which will cover the cost of any claims between $200 million and $450 million.
"This storm is not going to touch that -- at least that's the indication from our reinsurance broker," Robertson said.
Citizens has been fighting with plaintiff attorneys over a lawsuit judgment stemming from the company's failure to adjust claims in a timely manner after hurricanes Katrina and Rita. Insurance Commissioner Jim Donelon and other state officials have argued that Citizens shouldn't have to pay the judgment because it could put the insurer at risk if a hurricane hit this season.
Citizens has already paid the $104 million judgment, Robertson said, so it's no longer a factor, but Citizens could have to pay additional settlement in the class action lawsuits on claims adjustment.
Rebecca Mowbray can be reached at rmowbray@timespicayune.com or 504.826.3417.
Source: http://www.nola.com/hurricane/index.ssf/2012/08/citizens_property_insurance_in.html
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