CEO of La.’s ‘Last Resort’ Insurer not Happy About Growth

Growth is good for most businesses but the chief executive officer for Louisiana Citizens Property Insurance Corporation is sorry to predicting a 40 percent to 50 percent growth rate in the coming one to two years for his company’s business.

Citizens was created Jan. 1, 2004. It is the administrator for the Fair and Coastal Insurance Plans, which were created to provide a safety net of last resort insurance for high-risk areas or individuals. Citizens’ premiums are controlled by Louisiana law and are priced at 10 percent above the average rate of top insurers by parish. The rates, by design, are not competitive.

“We don’t want to compete. We don’t want people’s business,” Citizens CEO Terry Lisotta said. “We’re a backstop for the people of Louisiana so they can get guaranteed insurance.”

Until voluntary insurance companies, including State Farm and Allstate, decide what their Louisiana insurance premiums will be, no one will know what percentage increase Citizens will face. Citizens provides insurance for about 8.5 percent of homeowners across Louisiana. State Farm and Allstate are the two largest homeowners insurance companies in Louisiana.

But, state Sen. Don Cravins Sr., D-Arnaudville, who owns Don Cravins Insurance Agency, predicts Citizens will, unfortunately, become the major property insurer throughout the state.

“The private companies like State Farm and Allstate are going to decline their writings,” Cravins said.

Citizens will have to fill the gap for Louisiana residents. Lisotta said the organization will have to sell revenue bonds to pay outstanding claims from the 2005 storm season.

Because Citizens is a state-backed agency, it cannot go bankrupt. Citizens has applied to sell revenue bonds not to exceed $1.4 billion to fill the gap between its coffers and the estimated $920 million costs to pay for the 60,722 Katrina claims and approximately 12,000 Rita claims. Lisotta said the organization likely will sell bonds for around $800 million, rather than the full $1.4 billion, but “when you go to the bond issue, you don’t want to go twice.”

Even customers of private insurance companies will likely pay part of Citizens’ bill. State law allows the company to collect fees from private insurers to help pay off the bonds.

Cravins, meanwhile, is calling for a national debate on property insurance.

“We need to see if we can’t design a uniform national hazard policy,” Cravins said. “We would be able to spread the risk on a national level. A town in Missouri wouldn’t have to worry about a hurricane. They may have tornadoes.”

Lisotta said the idea of spreading risk of property insurance nationally is not a new idea.

“It’s an idea that is gaining more and more support nationally,” Lisotta said. “It is based on that more and more people moving to coastal areas. More and more people are being affected by disasters.”

Topics Carriers Louisiana