Transcript Louisiana Citizens Property Insurance Corporation

May 5, 2009
John Wortman, CEO
Louisiana Citizens Property Insurance
Corporation
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Background on Louisiana Citizens
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Current Status
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Assessment Process
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Depopulation
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Future Challenges
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Property Residual Market Started in Louisiana
in 1970
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FAIR Plan
Coastal Plan
Audubon Insurance Managed the Pools’
Operations
Policy Issuance and Maintenance
 All Claim Handling
 Systems
 Financial Reporting
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In Early 2000’s Audubon Shut Down Risk
Bearing Operations (Kept Servicing Carrier
Operations)
In 2002 FAIR and Coastal Plans Boards Became
Concerned That All Audubon Operations
Might be Shut Down
Made a Decision to Hire PIAL to Oversee the
Development of an In House System that
would be used by Multiple Service Providers
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At the Time, PIAL was Very Small with Little
Insurance Experience (Fewer than 20 People)
Protection Class Determination for Cities and Towns
 Individual Commercial Property Building Rating
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In 2002 PIAL Hired SBS (No RFP) to Build a
Policy Management System
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SBS had Little Insurance Experience
PIAL had Little Insurance Operational Experience
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Began to Move Forward with the New Strategy
in 2003
In 2003 the Legislature Formed Louisiana
Citizens Property Insurance Corporation as the
Successor to the FAIR and Coastal Plans
Citizens Board was Formed in the Fall of 2003
(Much Overlap with PIAL Board)
Decision from Citizens Board to Continue the
Strategy (New System and Multiple Service
Providers)
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Citizens Entered a Contract with PIAL to
Manage Operations
In Late 2004 an RFP for Service Providers was
Released
Awards were Made to Three Vendors to
Become Service Providers April 1, 2005
Unsuccessful Bidders Brought Legal Action
Against the Process
Implementation was Moved Back Six Months
(Until October 1, 2005)
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Courts Held the Process was Fair and Let
Awards Stand (July 2005)
SBS Continued to Build the System
Service Providers Began to Gear up to Take
Over Most Audubon Functions on October 1,
2005
PIAL Began to Hire Personnel to Build a
Website and to Begin to Perform Insurance
Functions
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August 2005 – Hurricane Katrina Struck
Louisiana
September 2005 – Hurricane Rita Struck
Louisiana
Decision Made in September to Proceed to
Implement New Operations October 1, 2005
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Little Insurance Company Experience at PIAL
Storms Disrupted Physical Workspace
Storms Disrupted Employee Lives
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Service Providers were New
 System Did Not Work Properly
 Company Had to Raise $1 Billion in Debt
 Storms Generated 80,000 New Claims
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As a Result of the Above, Operations were
Inefficient
In Early 2007 Insurance Commissioner Hired a
Consulting Firm to Examine Citizens
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Their Report to the Board in March did not
Paint a Pretty Picture
Board Decided to Employ a CEO and Begin to
Separate from PIAL
CEO Hired April 23, 2007
Assessment of Conditions
Plan to Separate and Build a Citizens
Organization
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Hired Experienced Insurance Personnel
Completed 2005, 2006 and 2007 Financials
Outside Auditors were Hired
Outside Audits Completed
Completed PIAL/Citizens Separation Plan
(Work Space and Work Tools)
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Extended Service Provider Contracts to 4/1/09
(Out of Storm Season)
RFP for New Service Contractor Bids has been
Released – Awards Made Effective May 1
Assessed Viability of the Policy Management
System
Determined not Salvageable – RFP for New
System has been Released – Contract Awarded
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Developed Comprehensive Catastrophe and
Disaster Recovery Plans
Moved Server Rooms out of Harms Way
Assessment Process Ahead of Schedule to Pay
Off Debt
Current Exposures (Before Depopulation)
170,000 Policies in Force
 $260,000,000 in Annualized Premiums
 $35 Billion of Total Insured Values
 Third Largest Property Insurer in Louisiana
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Established RFP for Reinsurance Broker
Benfield Selected
Reinsurance Program Effective June 1, 2008
Purchased 90% of $500 Million Excess of a $200
Million Retention
After Depopulation - One in One Hundred
Year Event $850 Million
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Hurricanes Katrina and Rita
80,000 Total Claims
 78,500 Closed
 1,500 Open Law Suits
 5 Certified Open Class Action Law Suits
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 Timely Investigation and Payments
 Policy Fee
 Overhead and Profit
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$1.3 Billion Paid
$1.5 Billion Final Estimate
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Hurricane Gustav (September 1, 2008)
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Generated 51,000 Claims
50,300 Closed
Incurred $230 Million
Hurricane Ike (September 13, 2008)
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Generated 3,600 Claims
3,400 Closed
Incurred $12 Million
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Regular Assessment
Assess Insurance Industry
 No More than One Assessment per Year
 Up to 10% per Assessment
 Property Lines of Insurance
 Due within 30 Days of Assessment
 May Recoup from Policyholder
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Emergency Assessment
Assess Policyholder
 Up to 10% per Year
 Property Lines of Insurance
 Industry Collects from Policyholder
 Policyholder Receives a Tax Credit for Assessment
 Current Assessment 5%
 Emergency Assessment Timelines
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 April 1 – Insurance Companies Report Prior Year DWP
to Louisiana Insurance Department
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 July 1 - Department of Insurance Certifies the Total
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Direct Written Premium to La Citizens
July 1 - Trustee Notifies La Citizens of the Debt Service
Requirements for the Next Bond Year
Aug 1 - La Citizens Determines the Minimum Levy
Requirements (in dollars) and the Uniform Assessment
Percentage Applicable to Affected Policyholders for the
Next Bond Year
Aug 1 – La Citizens Confirms or Revises its
Determination of the Plan Year Deficit (2005
Katrina/Rita)
Sept 1 - Department of Insurance Verifies the
Determination of the Uniform Assessment Percentage
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 Sep 15 - The Corporation Notifies Affected Insurance
Companies of the Assessment Percentage
 Jan 1 - Effective Date for (2005) Deficit Emergency
Assessment at the Assessment Percentage
 Mar 31 - End of First quarter of Collections
 Apr 30 - Deadline for Remittance of First Quarter
Collections of 2005 Deficit Emergency Assessment by
Affected Insurance companies
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Depopulation Process
Takeout Company Signs Confidentiality Agreement
 LCPIC Provides Database of Available Policies to
Company
 Takeout Company Selects Policies
 Agents Authorize Policies to Company of Their
Choice
 Take out Company Assumes Authorized Policies on
Assumption Date
 Takeout Company Contracts with Agent
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LCPIC Maintains Policies Until Expiration
Takeout Company Issues Replacement Policy at
Renewal
Takeout Company is Responsible for Losses from
Assumption Date
Round I (March 1, 2008)
7 Companies Participated
 26,000 Policies Removed
 $6 Billion in TIV
 $40 Million in Premium
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Round II (December 1, 2008)
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8 Companies Participated
15,000 Policies Removed
$3 Billion in TIV
$24 Million in Premium
Key Issues (Round I)
New to Everyone
 Rates and Forms
 Multiple Companies Authorized to Remove Same
Policy
 Effective Communication
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Manual Process
Key Issues (Round II)
Automated Authorization - More Effective Use of
Web Site
 On-line Agent Registration
 Secure Web Portal for Company Selection Process
 Secure Web Portal for Agent Authorization
(Eliminated Duplicates)
 Simplified Opt Out Procedure
 La Citizens Confirmed Assumptions to Agents and
Insureds
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Round III
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Taking Place at this Time (will Conclude June 1)
Benefits
Policyholders have Wider Choice of Insurers
 Lower Prices
 Agents have New Markets
 Increased Economic Activity in Louisiana
 LCPIC Reduces PIF Count
 Less Chance of Industry Assessment
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Implement the New System
Complete Monthly Financial Reporting
Continue to Evaluate and Test the Catastrophe
Plan
Refine the Website
Continue to Work on Depopulation
Implement New Service Provider Contracts
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Establish Detailed Financial Plans
Establish Detailed and Measurable Operating
Objectives and Plans
Develop Agency Council and Agency Training
Programs
Continue to Develop Workflow Improvements
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