Recovery assessments 'a bump in the road'

BATON ROUGE -- Despite rumblings from lawmakers that the state-run homeowners insurance company should be restructured or possibly abolished, its chairman said Monday that the Legislature "should stay the course" and let the company operate as it has for the past few years.

Chad Brown, the state Department of Insurance's chief of staff and chairman of the board of the Louisiana Citizens Property Insurance Corp., told the Press Club of Baton Rouge that the Legislature should not tinker with Citizens now.

Brown said he does not see any real changes needed in state-run program, despite some lawmakers' claims that the 15-member Citizens board is top-heavy with insurance industry representatives.

Under existing law, at least eight members must represent insurance interests, and the governor can name three at large -- who can also represent the industry. The chairmen of the House and Senate committees on insurance, the insurance commissioner or his designee and the state treasurer also sit on the board.

Some lawmakers have complained that the board leans too heavily toward the industry. Many legislators have been catching heat from constituents for the assessments that Citizens has charged to keep it solvent.

Paying off bonds

Assessments averaging 15 percent -- with some hitting 18 percent -- were placed on all homeowners' policies in the state this year. That is expected to fall to 3.6 percent in April and rise to 5.5 percent for the life of the 10-year, $1 billion bond issue that the state-operated company sold to help finance the bonds that are paying claims from Hurricanes Katrina and Rita.

Gov. Kathleen Blanco has promised to call a special legislative session in December to address Citizens' debt and possibly tap some of the projected $827.3 million surplus from the fiscal year that ended June 30 to rebate $150 to policyholders who paid the assessments or pay down some of Citizens' loans.

"Citizens was having an effect" on stabilizing insurance rates and keeping private carriers in the state, Brown said. By the time the hurricanes hit last year, he said, Citizens had moved 10,000 of its 135,000 homeowners' policies to the private market.

Surplus is forecast

Hurricanes Katrina and Rita "were a bump in the road which will take a few years (for Citizens) to recover from," Brown said. He said that "staying the course" on Citizens "may not be the politically popular thing to do," but if it is left alone and there are no major blows to the insurance industry in the state in the next year, Citizens could have a surplus of $200 million to $300 million in the next year.

The only change needed, Brown said, is giving the insurer authority to hire more workers to process claims. He said there are about 50 employees now working for Citizens and another 30 are expected to be hired after Jan. 1.

There are still 200 to 300 claims a week being filed with Citizens as a result of hurricane damages, Brown said.

He said that neither Citizens nor the rest of the industry was prepared for the double blows of Katrina and Rita. He said Citizens had about $300 million in reinsurance -- the insurance coverage that an insurance company takes out to pay claims -- for Katrina and $200 million for Rita.

Besides an expected $300 million surplus, Brown said, Citizens will have $600 million in reinsurance next year -- barring any major disasters -- and possibly as much as another $400 million for a second major disaster, making it better able to pay claims.

He said the $300 million reinsurance Citizens had for Katrina was thought to be enough based on the projections for storms like Katrina hitting once every 100 to 200 years.

"If we had purchased $1 billion of reinsurance (as a matter of routine), we would have been criticized . . . as not being justified by the numbers," Brown said.

$150 payback

Instead of having the state mail out rebate checks to insured homeowners, Brown suggested that the insurance companies should be required to mail the refunds for the assessments, saving the state "millions of dollars."

An alternative, he said, may be having the state award tax credits to policyholders in the amount of $150. For those who do not pay state income taxes, Brown said, they could get the rebates mailed to them.

He also said that the Legislature may also want to consider redirecting some of the revenues from the insurance premium tax -- which ranges from 3 percent to 9 percent based on the type of policy -- now assessed by insurance companies and built into the rates charged customers.

In the 2005-06 fiscal year, the tax generated about $214 million and most of the money flowed to the state general fund, said insurance department spokeswoman Amy Whittington. Brown said some of that tax revenue could be used to pay off the Citizens bonds and keep the company solvent.

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By Ed Anderson
Capital bureau

Ed Anderson can be reached at eanderson@timespicayune.com or (225) 342-5810.

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