Louisiana’s property insurer of last resort expects to shift about 10,000 policies to private insurance companies for 2016, a move that will reduce premiums by roughly $20 million.
Seven private companies have requested policies from Louisiana Citizens Property Insurance Corp., interim Chief Executive Officer Vijay Ramachandran said Thursday. So far, insurance agents have authorized the transfer of 9,458 policies, and that number will likely reach 10,000. The state-backed insurer has been steadily reducing the number of policies it holds after 2005 hurricanes Katrina and Rita caused an influx of customers who couldn’t get coverage from private insurers.
State law lets agents decide whether to allow a private company to assume the Citizens policies, Ramachandran said. Policyholders have 60 days to decide whether to go with the private insurer selected or remain with Citizens.
Ramachandran spoke during a Citizens board meeting.
In other action, the board voted to stop offering policies with a $10,000 deductible for damages that aren’t caused by hurricanes, or all other perils. Citizens will allow customers to renew the existing 6,300 policies with the $10,000 deductible, but no new policies will be written after Dec. 31.
The board also approved a 5 percent raise for Ramachandran as interim CEO. Ramachandran is also Citizens chief operating officer but took on the CEO duties following the March resignation of then-CEO David Thomas. Ramachandran’s salary will increase to around $288,000 in 2016. Thomas was paid close to $290,000.
Board member Sam Little suggested removing the interim from Ramachandran’s title. Board Chairwoman Denise Brignac, who is also the state’s chief deputy insurance commissioner, said only Insurance Commissioner Jim Donelon has that authority.
Donelon has not decided whether to launch a national search for a new CEO or to keep it local, Brignac said. The decision will be made in the next month or two.
Thomas was the third CEO Citizens has had since 2007. Board member Johnny Reeves said that kind of turnover shows a new approach might be indicated.
Meanwhile, Chief Financial Officer Steve Cottrell said Citizens is the only of the state’s 10 largest insurers to offer the $10,000 deductible for everything but hurricane damage.
The result is that Citizens is offering lower rates than private insurers and adding business the state-backed insurer should not have, he said. The policies jumped from 5.2 percent of Citizens’ book of business at the end of 2013 to 7.7 percent at the end of September.
“I’m not sure we’re doing our policyholders a service by selling this stuff,” Cottrell said.
The people who buy the coverage probably don’t realize they will have to cover the first $10,000 worth of damages, Cottrell said. And the people who buy the coverage are paying a lot of money — the average premium is $6,670 — for very limited protection.
Ramachandran said the right thing to do would be to convert the existing policies to a $5,000 deductible for all other perils.
But by “grandfathering” the existing policies, Citizens stops the problem from getting any larger, he said.
Board member Bill Starr argued forcefully against eliminating the $10,000 deductible.
The people who buy these policies may be doing so because it’s the only way they can afford coverage and satisfy their mortgage companies, Starr said. Lots of those people are having to deal with huge increases in their flood insurance costs. “I’m worried about hurting people who are already hurting,” Starr said.
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