press clipping

Tired of waiting for news on the fate of their flood-soaked neighborhood in eastern New Orleans, Sharon and Wayne Howard decided it was time to buy another home.

They found the perfect place in Algiers with three bedrooms, a sun room and a nice patio. Best of all, the house was seven feet above sea level and had no storm damage.

"I've got walls and windows," Sharon Howard said. "I've been wanting walls and windows since August 29."

But the Howards also wanted to retain the original insurance policy on their home in the East to protect it against liability, fire and theft. And Allstate, their insurer for 30 years, wouldn't issue the couple a second policy to cover their new Algiers home.

Out of options, they turned to the Louisiana Citizens Property Insurance Corp., the state-sponsored insurer of last resort, which quoted them an annual premium of $3,900 for the Algiers home. The Howards had been paying Allstate $1,800 a year for homeowners, contents and flood coverage on their home in the East.

"When I heard the $3,900 I really didn't go any further," Howard said. "That's a deal killer. If you can't get insurance you can't get into a house."

As people in the New Orleans area try to get on with their lives by acquiring new homes, they're discovering that most homeowners insurance companies operating in Louisiana aren't interested in insuring their homes. The situation is delaying - or in some cases, scuttling - real estate closings, and public officials worry that high prices and limited availability of homeowners insurance could deter banks from loaning money and derail efforts to rebuild New Orleans.

"It's very difficult, but not impossible," to get homeowners insurance, said Insurance Commissioner Jim Donelon. "It's a very serious problem. Our state cannot recover without the availability of homeowners insurance. Bankers tell me that, builders tell me that and economists tell me that."

Major companies such as State Farm and Allstate, which together control more than half of the homeowners insurance market in the state, generally aren't writing in the southern parts of the state, although they sometimes will allow existing customers to transfer a policy from one home to another. Some companies that had been writing policies in the New Orleans area stopped when they got worried that they were taking on too much risk in New Orleans. Farmers Insurance stopped writing March 1 within 30 miles of the coast in Louisiana because its business has grown by 30 percent in the last 12 months, the company said.

Buyers of homes valued at more than $500,000 may find options with companies that specialize in insuring luxury properties, such as the Chubb Group, Fireman's Fund Insurance Co. and AIG. And some homeowners have found success with the auto club AAA, which offers homeowners insurance, or with the Republic Group, a Dallas company that recently stepped up its efforts in the local market.

But the reality is, most people buying homes in the New Orleans area right now will end up with unattractive option of going with Louisiana Citizens Property Insurance Corp., which is required by law to charge premiums higher than its private market competitors.

Public officials are increasingly concerned that the limited availability of insurance could result in steep premiums that discourage consumers from buying property and strangle rebuilding efforts in the state. State Rep. Karen Carter, a Democrat from New Orleans who chairs the Insurance Committee, believes that the issue has been flying under the radar of the Louisiana Recovery Authority.

"Even though we're encouraging people to come back, there are some areas where insurance will be cost prohibitive." Carter said. "How do you rebuild a city without insurance?"

Walter Leger, a St. Bernard Parish attorney who heads the housing task force at the Louisiana Recovery Authority, said his group has been too busy with other housing issues to pay much attention to insurance. But Leger noted that Donelon has attended Recovery Authority meetings, and vowed to investigate the issue.

"There's no question about it, that's definitely a factor," Leger said of insurance availability and cost.

Indeed, Mary Foles, a mortgage broker with Best Mortgage Resource Inc., a subsidiary of Prudential Gardner Realtors, said she's had three people who initially qualified for mortgages but no longer qualified once the higher insurance rates from Citizens were factored in.

Before the storm, the rule of thumb about insurance costs was roughly $100 in homeowners premium per $10,000 of home value, except in areas where land is unusually valuable, such as Old Metairie. Now, Foles said, insurance is running double or triple that price with Citizens.

Foles worries that many consumers, especially those who are paying higher interest rates on their mortgages because of poor credit histories, won't be able to purchase homes.

"Your insurance is costing you as much as your mortgage. It's not feasible," Foles said.

Acorn, a community interest group for low-income families, is concerned that homeowners will start dropping coverage if Citizens is their only option.

"People will either be stuck with Louisiana Citizens and paying exorbitant amounts, or they'll go without," said Beth Butler, Louisiana head organizer with Acorn. "And don't think we haven't seen that."

Discouraged by the prospect of having to pay $3,900 for insurance with Citizens, Howard started calling insurance agents on a list from the Louisiana Department of Insurance to try to find a better deal. But it was a friend at the beauty shop who told her to check out the automobile club AAA.

The agency quoted her an annual premium of $1,300 on a policy that included more coverage than she had with Allstate or would have had with Citizens.

"That was a far cry from $3,900," said Howard, who was so excited she switched her automobile policy to AAA as a result. "I was extremely happy about that."

AAA only began selling homeowners insurance in Louisiana a few years ago, and may have greater capacity for insuring hurricane victims than other insurers because it is better able to spread its risk. Instead of having state-by-state subsidiaries, the non-profit auto club has a coverage area that expands from Colorado to Ohio and Iowa to Louisiana.

Mike Right, vice president of public affairs for the Auto Club of Missouri, another name for the local division of AAA, said business has been "quite good," especially now that other carriers have scaled back their coverage in areas affected by the storm.

Like many companies, AAA offers discounts to people who buy more than one type of insurance because customers who have more lines of insurance with one company are less likely to switch carriers and less likely to file claims.

Don Beery, vice president of Eustis Insurance & Benefits, an independent insurance agency, said that companies encouraging policyholders to combine their car and home policies is just one trend that's likely to intensify after Katrina as insurers try to put themselves on better financial footing. "The pricing's going up, the deductibles are going up, and the coverage is more restricted," Beery said.

Like Howard, Gina Aucoin found that wheeling and dealing with her automobile increased her homeowners insurance options, but she still wasn't able to avoid Citizens.

Aucoin is buying the Terrytown home she's been renting for a few years and never imagined that insurance would be the major headache. Aucoin got approved for a loan in a snap but was worried that the 45-day clock on the rate would expire before she could find insurance. Each of the five insurance companies she called referred her to the Citizens plan.

Citizens quoted her $3,400 to insure the $135,000 home. State Farm, which insures her car and her teenage son's, was willing to write the fire, theft and liability portions of the homeowners policy while shifting the hurricane and hail coverage over to Citizens.

Aucoin wasn't thrilled about having to go with Citizens for a portion of her policy, but Aucoin did manage to get the price down to $3,047 per year with the State Farm arrangement, plus her son will get a $68-dollar-a-month break on his car insurance. Still, Aucoin will be paying $254 a month in insurance on a house note that's $723 a month, or about 35 percent of the cost of her mortgage. Aucoin said she'll manage, but she wonders if others will be able to.

"This is an obstacle," Aucoin said. "They want to rebuild this city, but when you try to get insurance, it's out of reach."

So called "wind exclusions" such as the arrangement that Aucoin worked out are also expected to become more common after Katrina.

Earlier this month, Farm Bureau Insurance Cos. got permission from the Louisiana Insurance Rating Commission to cancel the wind portions of its policies in parishes along the coast and around Lake Pontchartrain and re-book them with Citizens because the company is in poor financial shape. At least 64 companies have gotten permission to exclude wind coverage since 1997, according to the insurance department. Not many have invoked the policy option to date, but the insurance department expects it to become more common on new business, just as it already has in Florida.

"That's what we're fighting on a daily basis to prevent," Donelon, the insurance commissioner, said. "In Florida, a typical homeowner has to buy three policies to protect themselves: a homeowners policy, a Citizens policy and a flood policy."

With few companies in Louisiana writing homeowners insurance, Citizens is bracing for a wave of new policyholders.

Terry Lisotta, secretary to the Citizens board, said that his company has already taken on 10,000 new policyholders since the storm. Citizens now has 135,000 policyholders and expects its ranks to swell to 200,000 by the end of the year.

Only about 10 percent of Citizens policies are wind-only at this point, but Lisotta expects that proportion to climb, too, as more people end up with arrangements like Aucoin's.

While many policyholders had trouble collecting on claims with Citizens after last year's storms, Lisotta promised the claims process will be better if there's a hurricane in 2006..

Citizens was caught in a one-time bad situation last year, Lisotta said, because it was switching claims servicing firms just as the hurricanes hit. The insurer was later sued by policyholders claiming the company delivered poor service and was slow to pay claims.

This year, Lisotta said, Citizens is working out the kinks and is finding ways to handle claims more efficiently. "We should be able to handle 200,000," Lisotta said.

In the meantime, every homeowner in the state may see special assessments on their bills this year to help bail out Citizens, which was formed in 2003 and did not have enough time to build up the financial reserves necessary to handle Katrina and Rita. Homeowners insurance companies had to pay for bonds to bail out Citizens, and are allowed to pass on the costs of that bail out to their policyholders. So far, 108 companies have filed plans with the insurance department to pass on a special one time assessment of as much as 18 percent.

But Citizens, the insurance department and insurance agents believe that the bulge in Citizens is only temporary and more homeowners insurance options will open - if Louisiana makes it through this hurricane season without a disaster.

Albert Pappalardo Jr., president of the Independent Insurance Agents of Greater New Orleans, said that some companies don't want to take on additional exposure in the New Orleans area until they see what happens with the levees.

In the meantime, the ready pool of customers and rising premiums are drawing yet another group of insurance companies to Louisiana.

"This market is driven by fear and greed. Once the premiums get high enough, there will be companies coming in to write insurance," Pappalardo said. And thanks to post-Katrina repairs, "You're going to have a much safer housing stock in the city, and insurance companies will like that."

Indeed, a Dallas company that typically insures homes with a replacement cost of $150,000 to $250,000, the Republic Group, has accelerated its policy-writing in Louisiana, indicating that a new market cycle may be stirring.

"We look at this situation with all this market disruption, it's probably an opportunity for us," said Parker Rush, president of Republic.

Another company, Capitol Preferred Insurance Co. Inc., confirmed it has been talking with the Louisiana Department of Insurance about the possibility of opening for business, but Capitol's decision ultimately rests upon the rates and structure of doing business in Louisiana.

"We are very interested. I think there's an opportunity." said Jim Graganella, president and chief executive of the Tallahassee, Fla., company. "Louisiana after Katrina is an area that's going to need some additional capacity, and there's going to be some rate relief."

Donelon said that increasing the number of insurance companies writing homeowners policies is a top priority.

In 2004, there were about 20 insurance companies actively writing homeowners policies in Louisiana, though there may not be that many now. Donelon said his goal is to get a total of at least 25 companies actively writing in Louisiana.

"It's vital to the economic recovery of Southeast and Southwest Louisiana," Donelon said.

And, more good news for Louisiana consumers is that the insurance rate increases may not be as steep as feared. So far this year, three insurance companies have gotten approval from the state to increase rates. ANPAC won approval for a 23 percent statewide average hike; the Farm Bureau got permission for a 49 percent rate increase; and Fireman's Fund was recently granted a 19 percent increase.

But now that more information about reinsurance, inflation and hurricane risk is available, the state's chief actuary, Richard Piazza, now estimates that most homeowners insurance companies will propose rate increases of less than 10 percent.

Lending credence to that estimate, State Farm, Louisiana's largest homeowners insurer with 32 percent of the market, recently filed its rate papers with the state. Its request: a 3.3 percent rate increase.

Rebecca Mowbray can be reached at rmowbray@timespicayune.com or at (504) 826-3417.