BusinessReport.com

Dale Spaht, an independent agent in Gonzales, found himself with about 200 Louisiana Citizens Property Insurance Corporation policies after Hurricane Katrina. Since the state-run homeowners’ insurer of last resort is, by law, more expensive than any other company, he’s always looking to move his customers into the private market.

But when Spaht received a letter from an unfamiliar insurance company wanting to take over some of his Citizens policies, he didn’t exactly jump at the offer. The letter told Spaht how many policies the company wanted, and asked him to sign off on the deal without even seeing the forms.

Many agents received similar letters from companies participating in the Insure Louisiana Incentive Program, which provides matching funds for insurance companies to enter the state and write new business, while taking a significant number of policies out of Citizens. After his initial reluctance, Spaht did some research and decided ASI Lloyds and Occidental Fire & Casualty were offering nearly identical policies to Citizens.

“We all want to depopulate Citizens, but not at the expense of ourselves or our customers,” he says.

The Department of Insurance says 26,595 policies were taken out of Citizens in June, thanks largely to the incentive program, leaving the state-run insurer of last resort with about 144,000 policies. A smaller Citizens is good for anyone with homeowner’s insurance, Commissioner Jim Donelon says. The state can assess charges on your insurance bill to cover Citizens’ losses, so the less business it writes, the less the rest of us are on the hook.

Donelon’s long-term goal is to get Citizens down to 100,000, and he says he’s happy with the results so far. A second round of the program in the fall might be more successful, assuming the kinks can be worked out.

In the first round, many agents did not embrace the program. Occidental Fire & Casualty Insurance Co. of North Carolina, for example, requested 22,846 policies, but was declined by the agents who owned the policies in 17,046 cases.

“On the commercial side, the customer is generally demanding it,” Donelon says. “On the homeowner’s side, these folks are less sophisticated, less knowledgeable, and often times don’t really know what they’re paying for their policy, and that there may be cheaper alternatives out there if they can just get their agent to do a search.”

Many agents were unsure about placing business with the unfamiliar insurers who showed interest in the program, even though the department vetted each company. Overall, though, Donelon says he’s pleased by the industry’s response. “Captive” insurance companies like Allstate and State Farm write about 60% of Citizens’ business. They have agreed to let their agents write policies for the takeout companies.

Jeff Albright, CEO of the Independent Insurance Agents and Brokers of Louisiana, says every participating insurer did basically the same thing: They fed information about every Citizens policy into a computer, which spit out the best risks. So every company was going after the same handful of policies. But if you’re an agent, and a company only wants, say, four of your policies, there’s no motivation to go through the time and expense of setting yourself up with that company.

“The problem was the companies spread their takeout too thin,” Albright says. “They asked for too few policies from too many agents.” In the next round, the insurers should choke down on the number of agents they approach and ask for more policies, he suggests.

“Somebody’s got to put their thinking cap on,” Albright says.

Citizens took over the state’s residual property insurance market at the beginning of 2004, replacing the FAIR and Coastal plans. One year later, hurricanes Katrina and Rita left Citizens with a billion-dollar debt to be covered with a bond issue and recouped through an assessment of private market insurers.

“We’re excited that there’s new companies that have come into the state,” says Jody Boudreaux, executive vice president of the Professional Insurance Agents of Louisiana. “The incentive plan has drawn some attention to the state. It makes a great statement to companies that are out there that Louisiana is doing something proactive.”

Spaht, the Gonzales agent, says participating in the program might be a bit of a hassle in the short term, but makes sense for his business in the long term because it allows him to form relationships with companies that he might not have otherwise.

Donelon says he’s already hearing from companies who would like to participate in the next round of the program this fall, although that will depend on how well everyone does this hurricane season.