Top 10 Stories of the Year – South Central

It was difficult to get away from natural catastrophes in 2006, even though the year was relatively unscathed by those types of events. Back-to-back 2005 Hurricanes Katrina and Rita continued to wreak havoc on insurance markets in the South Central states, while residents tried to recover some of what they lost as a result of those natural disasters. Wildfires in Texas, Oklahoma, Arkansas and even northern Louisiana failed to honor borders and timelines alike, marching through the drought from 2005 into 2006. These catastrophes brought attention to the long dormant New Madrid fault, which runs through the center of the U.S., ending in northeast Arkansas.

Workers’ compensation reform in Texas, the 2006 elections, mergers and acquisitions among regional carriers and the failure of Vesta/Texas Select shared the headlines with cat-related news in 2006, as well.

1. Hurricane Katrina recovery

Fallout from Hurricane Katrina continued to affect housing, commercial property, court rulings, fraud, claims period extensions, and more during 2006. Practically every line of insurance was impacted by the storm, especially in the property/casualty sector.

Commercial and personal property markets in southern Louisiana were hard hit and the scarcity of coverage at any price hampered the recovery process in New Orleans and along the coast. Vast portions of Katrina-affected areas still appear as though the hurricane happened last month, rather than nearly a year and a half ago. Late in the year, St. Paul Travelers threatened to withdraw from the commercial property market in south Louisiana, sending politicians and regulators scrambling to convince the carrier to stick around. At press time, the verdict was undecided.

In mid-December the Louisiana Legislature met in a controversial special session called by Gov. Kathleen Babineaux Blanco to address budget issues and a bail out for Louisiana Citizens Property Insurance Corporation, the state’s market of last resort, which incurred nearly $1 billion in debt as a result of Hurricanes Katrina and Rita. Although lawmakers balked most of Blanco’s proposals to spend the more than $1.6 billion budget surplus, a measure to help out homeowners strapped with a 15 percent assessment in property insurance fees enacted to help pay off Citizens’ debt passed. The measure gives homeowners a tax credit or rebate for the assessments.

Also passed was a bill that would provide $300 million to shore up infrastructure along the Mississippi River to lure German steelmaker ThyssenKrupp Steel AG into building a factory near the river between New Orleans and Baton Rouge.

Lawmakers ended the session on Dec. 15, two days earlier than expected.

2. The Hurricane Rita effect

Following in the footsteps of Katrina in September 2005, Hurricane Rita whipped up windstorm issues in Texas throughout 2006. The devastation it wreaked in Orange-Beaumont-Port Arthur in Southeast Texas, as well as in locations far from the coast, served as a warning sign for the potential damage a major hurricane would cause in more heavily populated coastal metropolitan areas.

The insurance industry, from carrier organizations to agent associations, lobbied hard for higher rates for the Texas Windstorm Insurance Association, the state’s insurer of last resort for windstorm coverage in 14 coastal counties, as well as for an overhaul of TWIA’s funding mechanism. The industry maintains that a major hit to the Houston-Galveston corridor or Corpus Christi could greatly jeopardize the state’s general revenue fund if insurers are hit with unlimited assessments after other funding sources are depleted.

TWIA had a $138 million deficit as a result of losses caused by Hurricane Rita, and has an exposure of $13 billion in Galveston County alone.

3. Wildfires plague drought stricken states

By December 2006, when Oklahoma Gov. Brad Henry lifted a burn ban for the last four counties in his state, Oklahoma had been under some form of a burn ban for 11 of the previous 14 months. From late 2005 through the first few months of 2006, hundreds of thousands of acres burned in fires brought on by drought and high winds in Texas, Oklahoma, Arkansas and Louisiana. Texas and Oklahoma were hardest hit. Between November 2005 and late January 2006 more than 450,000 acres had burned in Oklahoma. In Texas, between Dec. 26, 2005, and mid-March 2006, some 10,000 fires had burned more than 3.5 million acres.

4. Texas workers’ compensation reform

The reform of the Texas workers’ compensation system that began in September 2005 continued throughout 2006 and there’s more to come. Speaking at an industry-sponsored event in September 2006, Texas Department of Insurance Division of Workers’ Compensation Commissioner Albert Betts described the tough task of creating a new workers’ compensation system in Texas. “There is no magic fairy. There is no pixie dust. … This is a major overhaul of the workers’ compensation [system] in this state,” Betts said.

The legislative mandated reform started with the abolishment of the former Texas Workers’ Compensation Commission and the creation of the DWC under TDI’s banner. A separate Office of Injured Employee Counsel was also established. Together those three entities, with input from the insurance industry, employers and employee groups, are pushing to implement a system to lower costs for employers, provide better health care for injured workers and increase return-to-work levels. By late December, 20 workers’ comp health care networks had been approved.

5. Flood insurance revisited

2006 saw increased scrutiny of the federal flood insurance program after the hurricanes of 2004 and 2005. Massive flooding in hurricane-ridden states highlighted the need for widespread flood insurance coverage for homeowners and businesses alike. The National Flood Insurance Program began outreach initiatives to educate agents and consumers, while many agents battled lawsuits stemming from perceived, or real, lack of information or misinformation about flood insurance provided to their insureds

6. Regional carrier merger activity heats up

Late in 2006, Dallas’ Republic Group of Companies merged with a subsidiary of Delek Capital Ltd., part of Delek Group Ltd., an Israel-based conglomerate with interests in energy, infrastructure, communications, real estate, financial services and automotive businesses.

Affordable Residential Communities Inc. of Englewood, Colo., agreed to acquire Waco, Texas-based National Lloyds Insurance Company and American Summit Insurance Company. ARC will acquire the stock of NLASCO Inc., a privately held property and casualty insurance holding company and the parent of National Lloyds and American Summit. Under the proposal, NLASCO’s shareholders, which consist of C. Clifton Robinson and affiliates, will receive $105.75 million in cash and 1,218,880 shares of ARC common stock for a total of $117.5 million.

7. Texas Select/Vesta

Although it was touch and go for a while, all of the homeowners whose coverage was placed at risk when Vesta Fire Insurance Company (Vesta Fire) and its Texas subsidiary insurance companies went under found coverage when numerous other carriers stepped up to take those policies. The Texas Depart-ment of Insurance took over the bankrupt Vesta Fire and its subsidiaries in the summer and placed them into liquidation. Vesta Fire was the parent company of four other Texas-domiciled insurers: Texas Select Lloyds Insurance Company, Vesta Insurance Corporation, Shelby Casualty Company, and the Shelby Insurance Company. Texas Select was the only one with active Texas policyholders.

8. New Madrid fault

The New Madrid fault line runs north-south through the middle of the country, ending in northeast Arkansas. Although the last significant activity on the fault occurred in the early 1800s, increased catastrophe awareness put the spotlight on the New Madrid in 2006, raising questions about sufficient coverage in affected states. Arkansas Insurance Commissioner Julie Benafield Bowman told Insurance Journal that she is concerned about a low availability of earthquake coverage in her state. Allstate Insurance Company in June said it would cease earthquake coverage in much of the U.S. and Bowman said three companies had expressed interest in withdrawing from earthquake coverage in Arkansas.

9. Elections 2006

There were relatively few surprises in the November 2006 elections in the South Central states. Only two insurance commissioners were up for election. Kim Holland, of Oklahoma, won easily, despite having to battle a negative media campaign instigated by a group with ties to Texas. Jim Donelon, of Louisiana, won by a narrow margin in a special election held in September.

10. Fisher found guilty

Early in 2006, Carroll Fisher, former insurance commissioner of Oklahoma, was convicted of embezzling his own state campaign funds by depositing a $1,000 campaign check into his personal checking account. He also was convicted of perjury for not disclosing the donation on a 2003 campaign report. He was sentenced to three years in prison and fined $20,000. He still faces tax-related and perjury charges and is due to be back in court in February 2007.

Topics Catastrophe Carriers Texas Legislation Workers' Compensation Flood Louisiana Hurricane Property Homeowners Oklahoma Arkansas