Citizens assessment to cost homeowners average $54

Homeowners will pay $54 on average next year on their insurance policies to cover bond payments being made by state-backed Louisiana Citizens Property Insurance Corp., which had to borrow nearly $1 billion to pay claims from Hurricane Katrina.

Citizens’ board of directors voted Thursday to approve the 3.74 percent assessment on all property insurance premiums in Louisiana, which is tax deductible.

Citizens Chief Financial Officer Steve Cottrell said the assessment is based on $85.5 million the insurer will pay in 2013 toward retiring the bonds. Citizens is the state’s insurer of last resort, covering homeowners who can’t get coverage anywhere else.

Bond debt is paid for by assessments on private insurance companies, which pass those fees along to their policyholders

Residential and commercial property owners in the state pay a total of about $2.2 billion a year in property insurance premiums, Cottrell said. The assessment is the percentage designed to meet the debt payments.

The 2013 rate is down from this year’s 3.9 percent because Citizens took advantage of lower interest rates to refinance some of the bonds, Cottrell said. When it originally borrowed the money, Citizens was paying 5 percent interest.

Board member James Napper reminded property owners to deduct the Citizens assessment on their Louisiana income tax.

“I am always amazed that around 40 percent of people do not do it,” Napper said.

Citizens board also approved measures designed to limit the number of wind-and-hail-only policies sold to commercial customers.

This year, Citizens’ wind-and-hail policies grew around 10 percent to 3,886, Cottrell said. Citizens has a total of 5,266 commercial policies and 74 percent are wind-only policies, which basically cover hurricane damage.

Citizens Chief Executive Officer Dick Robertson said he’s been told that Citizens’ commercial policies are “artificially low.”

Earlier this year, Citizens raised its homeowners wind-only policies an average of 58 percent. Citizens is required by state law to charge 10 percent more than private insurers. In June, the state Legislature passed a law eliminating the extra 10 percent requirement in a dozen coastal parishes.

However, Citizens did not address its commercial wind-only policies.

Robertson said the policies have become part of private insurance companies’ marketing campaigns.

In the past few months, the company is seeing a larger-than-usual number of requests for commercial, wind-only coverage, he said. Most of the requests are in the Kenner and Metairie area.

Although Citizens limits commercial coverage to a maximum of $5 million, some customers whose buildings are worth more are still buying Citizens wind-only coverage, he said. For example, a person whose building is valued at $15 million may buy $15 million worth of coverage for everything except wind from a private insurer.

Robertson recommended that Citizens only sell wind coverage to customers whose property isn’t worth more than $5 million; and sell wind-only policies to customers who have been declined for full coverage, not just the wind portion.

Board member William Starr questioned whether these changes meant Citizens was getting out of the wind-and-hail business altogether, leaving behind businesses who desperately need the coverage.

Robertson said if commercial customers can find full coverage with a private insurer, they should do so.

“It’s self-serving for … anybody else to lay off wind and hail on us,” Robertson said.

Napper recommended that Citizens staff report in November on what it will take to get Citizens out of the wind-only business.

He amended the request to ask the staff to look at a suggestion by board member Sam Little, who recommended lowering the commission on wind-only policies to 1 percent.

If the agents can’t make any money selling those policies, they’ll stop selling them, Little said.