Cleveland Verdin
May 26, 2008
Dr. Charles "Chuck" Binford
May 28, 2008
State Insurance Commissioner Jim Donelon came to Houma last week as a stop on his “storm-awareness tour” to urge homeowners to buy federally-subsidized flood insurance policies and to talk about efforts to get insurance companies to write policies in Louisiana.
Federal flood insurance policy rates are set on a national basis (paying a maximum $250,000 for damage to the home and $100,000 for contents), spreading the risk coast to coast, Donelon said. Homeowners can purchase private insurance above those limits.
Only 40 percent of the victims of Hurricane Rita had flood insurance, he said.
Private insurers paid out $20 billion in claims for Hurricane Katrina and $3 billion for Rita, according to Donelon. Federal flood insurance policies paid out billions more.
Yet homeowners in the state pay $1.3 billion in premiums a year, businesses $2.3 billion.
“These insurance companies made record profits before that,” he said. “They made profits internationally, but not on insurance in Louisiana.”
Donelon said homeowners’ insurance premiums in the state have fallen 30 to 40 percent this year, but that decrease comes off of rates that rose 400 to 500 percent after Katrina.
Since becoming commissioner in 2006 in a special election, Donelon has worked to bolster private insurers against the growth of the Louisiana Citizens Property Insurance Corporation, a quasi-public corporation which assesses fees on private insurers to offer property insurance to people unable to afford to purchase policies in the open market.
During Donelon’s tenure, 30,000 policies were removed from Citizens in Louisiana.
“Thirty thousand policies taken out of Citizens is a good start,” he said.
The Citizens Property Insurance Corporation in Florida, created in 2002, has become the largest property insurer in that state by levying assessments on private insurers.
“Florida made policies cheaper than private policies,” Donelon said. “A quarter million policies were dumped by private companies. It put policy holders at great risk in Florida.”
“Louisiana cannot afford to be in the property insurance business,” he said.
Former Gov. Kathleen Blanco set aside $100 million to be used to bring insurance companies to Louisiana following Katrina.
Louisiana has given at least $10 million each to six insurance companies to write policies in the state, Donelon said.
Six more have come to the state without participating in the incentive program.
A bill in the current session of the Louisiana Legislature would allow insurance companies underwriting policies in the state to increase deductibles on homeowners’ policies by five percent on damage caused by tropical storms and hurricanes (called a “named-storm deductible”) in exchange for mandated lower premiums.
Any change in deductible rates has to be done statewide, meaning homeowners in central and north Louisiana would be subject to the named-storm deductible, although they would be unlikely to receive significant storm damage.
In response, Donelon said, insurance companies in Louisiana want to divide the state into coastal, central and northern areas to better reflect vulnerability to storm damage.
