At Louisiana Citizens Property Insurance Corp.’s (LCPIC) Nov. 10 board of directors meeting, the board voted to temporarily increase the commercial coverage limits to $10 million for a single building, $3.2 million in contents, and up to $20 million of aggregate coverage per insured.
In 2013, the commercial limits were set at $5.5 million for a single building, $2.2 million in contents and $11 million in aggregate coverage per insured. The increase in limits will take effect immediately and will sunset in two years, at which time LCPIC will reevaluate if the increased limits are still necessary.
LCPIC CEO Richard Newberry reported to the board that the Independent Insurance Agents and Brokers of Louisiana (IIABL) discussed their concerns about the need to increase the commercial coverage limits with him and Insurance Commissioner Jim Donelon.
LCPIC management was advised by some agents of a potential problem that is on the horizon with commercial property written in the surplus lines market. When LCPIC polled those agents as well as the agent associations, LCPIC management was advised that some surplus lines companies are moving very quickly to non-renew as well as cancel existing policies with and without damage.
LCPIC Board Member Shannon Johnson, owner of Flowers Insurance Agency, said that if the non-renewal occurs while there is an open claim, the agent will not be able to find coverage in the voluntary market, and the agent will have to go to LCPIC for coverage.
Commissioner of Insurance Jim Donelon told the board that he has a friend in Lake Charles who was part of an ownership group which owned multiple apartment complexes that got non-renewed by their insurer. According to Donelon, the group was having trouble finding coverage in the voluntary market but finally found coverage with a surplus lines insurer at an 800 percent rate increase.
According to the board handout, the LCPIC staff will monitor all new commercial policies that are written at or above the previously set limits.
With the new policies at the higher limits, LCPIC will have the ability to bind the risk up to the new limits and those risks will be covered within LCPIC’s current reinsurance cat contract. LCPIC can underwrite on a risk-by-risk basis looking at location, concentration, PML, as well as premium for each risk. Then LCPIC can check what the facultative reinsurance certificate premium for each risk would cost LCPIC to place.
According to LCPIC management, the company will review how much premium to risk makes sense for LCPIC. Over time, if LCPIC’s volume is consistent, and LCPIC’s portfolio performs well, then LCPIC can take steps to ease the administrative burden by going to an automatic facultative process to lessen the paperwork on each individual risk.
Another way to handle the new limits is that LCPIC could purchase reinsurance on an excess of loss basis. According to the documents submitted to the board, if $5 million x of $5 million and $10 million x of $10 million layers are a sweet spot in the facultative market, it may make sense to dovetail that coverage with the limit increases that were implemented.
LCPIC also has the option, according to board documents, depending on a few years of experience, to move the book of large commercial properties into the treaty market with a quota share of a surplus share agreement. This treaty process also inures to LCPIC’s cat coverage and reduces LCPIC’s probable maximum loss, while allowing LCPIC to stand in the gap for those who need coverage.
It is unclear how many new policies will be written at the increased limits since a market analysis has not been conducted.
LCPIC management reported to the board that as of Aug. 31, LPCIC had six inforce policies with greater than a $5.0 million limit for a single building, one policy that has $11 million in aggregate coverage per insured and one policy that has contents coverage in the $2 million to $2.25 million range.
“We will look at the location of the risk, our concentration of exposure, our PML, as well as premium for each risk we get at the higher limits and manage the additional risk through the facultative reinsurance market,” Newberry told the board.
LCPIC Board Member Eric Burger, a partner at Lobman Carnahan, said that LCPIC is dealing with a lot of unknowns. “We don’t know the number of policies we are talking about. We don’t know the appetite of the facultative reinsurance market. We don’t know what the cost of the facultative coverage would be,” Burger said.
Newberry told the board that he has already reached out to the reinsurance market and that the reinsurance quotes on the higher limit commercial policies should take about three weeks to process. Newberry added that if the increased limits result in LCPIC taking on too much risk, LCPIC can revise the policy limits at a future board meeting.
In the end, the board passed the increased limits on commercial policies unanimously.
In addition to the increased limits on commercial policies, the board formally voted to approve an increase in the personal lines Coverage A limits to $1,000,000.
Personal lines Coverage A limits were raised to $750,000 in 2017, then in 2018, LCPIC’s agents advisory board asked the LCPIC board to consider the $1,000,000 limit. The increase was discussed during the July 12, 2018, board meeting. The minutes reflect that no concerns were raised by the board members in attendance, and the new limit was implemented by LCPIC management, but no formal vote to raise the limits to $1,000,000 was taken by the board.
The board voted unanimously to approve raising the personal lines Coverage A limits to $1,000,000.
In LCPIC CEO Richard Newberry’s report to the board, he updated board members on LCPIC’s results from the 2020 and 2021 hurricane seasons. The storms that affected LCPIC’s insureds were hurricanes Laura, Delta and Zeta in 2020 and Hurricane Ida in 2021.
The claims statistics outlined to the board are as follows: Laura, 2,706 claims reported with ultimate loss projections of $80 million; Delta, 2,116 claims reported with ultimate loss projections of $19.5 million; Zeta, 2,643 claims reported with ultimate loss projections of $21.5 million, and Ida, 13,554 claims reported with ultimate loss projections of $461 million.
In the 14 months since Hurricane Laura, 21,019 claims were reported compared to 37,356 total policies. Total losses from the four storms is currently $582 million with LCPIC incurring two $35 million retentions and the remaining $512 million being ceded to reinsurers. All remaining losses from the four storms will be covered by reinsurance.
With the $461 million in projected losses from Ida, LCPIC has $315 million in reinsurance remaining for a second and subsequent events.
“A robust reinsurance program has allowed LCPIC to serve policyholders in their time of need while remaining viable and avoiding assessment,” Newberry told the board.
The claims statistics outlined to the board for Ida are: 13,600 claims reported, 14,600 total expected, of those reported, 99 percent contacted, 97 percent inspected and 74 percent closed.
The areas that were hit hardest by Ida were: St. Charles Parish, 405 claims reported out of a total of 472 total risks; St. John the Baptist Parish, 346 claims reported out of a total of 383 risks; Jefferson Parish, 4,090 claims reported out of a total of 6,801 total risks, and Orleans Parish, 3,602 claims reported out of a total of 7,014 total risks.
Newberry updated the board on LCPIC’s response time in handling claims by reporting that the average number of days from the first notice of loss to payment of the claim for Hurricane Ida is 43.3 days, the average number of days from first notice of loss to inspection is 16.5 days, the average number of days from inspected to reported to LCPIC is 14 days, the average number of days from reported to LCPIC to payment is 13.2 days. The average loss payment as of Nov. 8 is $23,383.
The board voted to approve the following slate of corporate officers for 2022: Richard Newberry, chief executive officer; Paige M. Harper, general counsel and chief administrative officer/corporate secretary; Ricky R. Lindsey, chief information officer, and Joseph Sciortino, vice president accounting and finance.
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