Citizens' new policy approved

Once a special rule that forces insurers to maintain coverage on storm-damaged properties expires later this year, policies on those properties probably will be dropped unless the house has been fully repaired. Property owners won't be able to find new homeowners coverage because insurers won't write policies on homes that aren't in final form.

Citizens' new builders-risk renovation policy, which will be available July 1, seeks to address this problem by enabling homeowners to maintain a different type of coverage on the property while it is being fixed, even if it is not occupied. Unlike regular builders-risk policies, the one created by Citizens, the state-sponsored insurer of last resort, will allow homeowners to do the work on their homes themselves if they can't find a contractor.

Zurich Insurance Service Inc., the only company writing builders-risk renovation policies in the New Orleans area, requires the work to be done by a licensed contractor. Because contractors are in short supply and many Louisiana residents hit by Hurricanes Katrina or Rita didn't have adequate insurance, Insurance Commissioner Jim Donelon directed Citizens to create a new policy to meet the need.

Citizens Secretary Terry Lisotta said his group has been hiring new staff to make sure it's ready for the onslaught of builders-risk customers.

"I expect a good response, though I don't know what the numbers will be," Lisotta said.

The policy will only be available in areas hit by Katrina and Rita. It won't cover abandoned homes, and houses must be actively under repair to qualify, though they need not be occupied. Policies will cost roughly double what a regular Citizens homeowners policy costs, because they're considered higher-risk policies.

Emergency Rule 23

The debut of the new policy also opens the door for Donelon to lift Emergency Rule 23, which was issued late last year by the state Insurance Department to prevent insurers from dropping coverage on storm-damaged homes.

Consumer protection laws prevent insurance companies from dropping customers arbitrarily unless there has been an adverse change in risk on a property. Because hurricane-damaged homes are more dangerous than properly maintained houses, the department says companies would have taken advantage of that exception and canceled coverage on thousands of homes if not for Emergency Rule 23.

But insurance companies don't like being artificially held to risk for which they say they're not being compensated, and the department is leery of pushing them too hard because it doesn't want them to pull out of the market.

Donelon has indicated that he doesn't want to keep Emergency Rule 23 in place any longer than necessary, and he may retire the rule before it expires at the end of the year, now that Citizens has created the new policy.

But Amy Whittington, a spokeswoman for the Louisiana Department of Insurance, said the department wants to allow Citizens time to make sure it can adequately service the new policies before dropping Emergency Rule 23. "It's got to stay in place for a while," Whittington said.

Allstate condo rates

In other news, the rating commission, a body appointed by the governor to review proposals to change insurance rates by more than 10 percent, granted Allstate Insurance Co. permission to raise rates on its fledging condominium insurance program, but only after it reduced the size of the proposed increase and divided the state into two territories. That way, residents in northern Louisiana wouldn't subsidize those in the more hurricane-prone south.

Allstate, which won a rate change in its homeowners program in April that could raise rates in the New Orleans area by as much as 52 percent, wanted to raise rates for its condominium program by 56.3 percent. But the state's second-largest residential insurer scaled back that proposal to 35 percent because it wanted to limit the impact on policyholders until it had more experience with the condominium market and was "more confident in our methodology," said Steve Armstrong, senior actuary for product pricing at the Northbrook, Ill., company.

Allstate has only about 2,400 condominium policies in Louisiana.

Condominium policies typically cost about $300 a year in premiums, Armstrong said, and the monthly increase for property owners should be between $1 and $20, depending on the style of construction and location of the property.

"The monthly increase in insurance premium should be much more manageable," Armstrong said.

Commission member Jabari Ragas, a financial planner from New Orleans who had asked Allstate to reappear before the panel to answer new concerns he had about the increases the company won in April, praised Allstate for tempering the condominium rate increases. "I like the word 'caution,' " Ragas said.

Shelter's rates rise

In recent months, the rating commission has shown greater sensitivity to the impact of premium increases on residents.

The commission deferred action on rate-increase proposals by Security Plan Fire Insurance Co., Meritplan Insurance Co., Encompass Insurance and Aegis Security Insurance Co. because its actuary, Rich Piazza, wanted to examine the proposals more closely.

The commission rejected a proposal by Federal Insurance Co. to exclude wind and hail coverage from homeowners policies because it wasn't actuarially sound.

The biggest rate increases of the day went to Shelter Mutual Insurance Co., which won rate hikes of 48.6 percent and 17 percent on two different types of homeowners policies that together will affect 17,408 people in the state. The type of policy carrying the larger rate increase is more popular in southern parts of the state.

While some holders of either policy -- mostly those in northern areas of the state -- could actually see a rate decrease, the most severe rate increases will be felt by Shelter customers in Lafayette, Lake Charles and St. Tammany Parish.

Steven "Rock" Ruiz, a commission member from Mandeville, voted against Shelter's 48.6 percent increase and against the Allstate rate increase Tuesday. "We're hurting the livability of the southern part of the state," Ruiz said. "If we keep putting 100 percent rate increases, nobody's going to stay, because they're not going to be able to afford it."

But Christine Berry, a commission member from Monroe, lamented that some rate increases are inevitable, because southern Louisiana is at high risk for hurricanes. "We know that it's riskier to live in the southern part of the state."

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Louisiana Builders-Risk Renovation Policies