Residents of coastal parishes can save as much as 20 percent on their property insurance by buying hurricane coverage from Louisiana Citizens Property Insurance Corp. and coverage for other risks from private insurers, but it’s unclear how long this arrangement will continue, Insurance Commissioner Jim Donelon said Monday.
The split policies are a bad idea for Citizens, which has to take on the business with the greatest risk while ceding the money-making coverage, such as fire and burglary protection, to private insurers, Donelon said.
Donelon gave a recap of insurance developments at the Louisiana Press Club luncheon including:
- The failure of proposed state laws that would have allowed the Insurance Department to regulate health insurance rates; to require health insurers to cover emergency treatment regardless of whether policyholders were treated at facilities outside their health network; and to adopt the National Association of Insurance Commissioners’ model act for independently reviewing health insurers’ decisions to deny coverage.
- The U.S. Supreme Court’s upcoming ruling on whether the Patient Protection and Affordable Care Act can require people to buy health insurance.
Donelon said he spent the last five years working to rebuild the state’s property and casualty markets after the devastation from hurricanes Katrina and Rita.
He said he expects to spend the next four years implementing regulations from the federal Affordable Care Act or, if the Supreme Court finds it unconstitutional, the Republican replacement.
Newt Gingrich, Sen. John McCain and presidential candidate Mitt Romney have all described the health-care system as one that is broken and cannot continue operating as it does now, Donelon said. The current system is a runaway train and needs to be brought under control.
Donelon, as he has said before, would like Citizens to get out of the the wind-and-hail-only coverage business.
Citizens began writing the wind-only policies about three years ago “in a mistaken effort” to be more accommodating and of help to residents in coastal areas, Donelon said. Citizens sold 20 percent more wind-only policies last year than the year before, and the policies now make up around 30 percent of Citizens’ 105,000 policies.
The wind-only policies became popular, in part, because they benefited “captive agents,” who work for private insurers but can also sell Citizens policies, Donelon said. Rather than selling a Citizens policy that covers all risks, these captive agents dump the hurricane risk on Citizens.
Brian VanDreumel, Louisiana Farm Bureau’s vice president of actuarial/research and development, said Farm Bureau and other insurance companies want to make sure they are able to pay 100 percent of claims at all times.
“A lot of companies just aren’t offering new wind-and-hail coverage in the southern part of the state,” VanDreumel said in a telephone interview after the luncheon.
Farm Bureau and other insurers are doing that in order to protect existing policyholders and to make sure the companies have enough money to pay the claims, he said.
Under state law, Citizens must charge 10 percent more than private insurers do.
Citizens raised the wind-only policy rates June 1 by an average of 58 percent statewide, although rates jumped more than 200 percent in some areas.
Residents of coastal parishes, local politicians and state legislators representing those areas protested. State Treasurer John Kennedy said the method Citizens used to calculate the wind-only rates was illegal, and Citizens board has asked the state Attorney General’s Office for an opinion.
At the tail end of the most recent session, the state Legislature passed a law that cut out the 10 percent additional charge in coastal parishes where private insurers didn’t offer the wind-only policies.
Citizens has estimated the rollback will cost the company around $15.8 million in lost premiums and fees, with $2.6 million of that premium related to wind-only policies.
Meanwhile, Donelon said Citizens now has around 105,000 policyholders, less than the insurer did before Hurricane Katrina. The number could eventually fall to around 85,000 policyholders, Donelon said. Private insurance companies had asked to take on 32,000 of Citizens’ policies, but insurance agents refused to approve moving around 19,000 of Citizens’ policies.
The agents who sold the Citizens policies don’t have to transfer those policies to takeout companies, Donelon said. One reason agents might decline the transfer is that they are not allowed to write policies for one of the takeout companies. However, Donelon said Citizens is required to send letters to each policyholder letting them know that other options are available.
Eventually, he expects those policyholders to make the switch.