UNITED STATES PUBLIC ADJUSTERS
Louisiana Hunts For Insurance As Audit Fishes Around Citizens Insurance
By Jim Brown
If there was ever any doubt about both the incompetence and the arrogance in the running of Citizens Property Insurance Company, all you have to do is review the latest Legislative Audit report made public this week. The Legislative Auditor, after a lengthy review, concluded that a number of state officials with oversight over Citizens may have broken the law by taking hunting and fishing trips paid for by the state run insurer of last resort. Could this be the final straw that causes a complete rebuilding of this bungled company that, through outright negligence, has a cost to taxpayers in Louisiana of over $1 billion?
Citizens was a disaster in the making from day one. Management, capital, and insurance protection. These are the three basic components that any business needs for start up purposes. All three were, for all practical purposes, nonexistent in the initial makeup of Citizens. Created in a rush by the legislature with little understanding of what they were doing, with sloppy oversight by the Department of Insurance, Citizens had little chance of success from the beginning.
Any business in startup mode needs capital. The legislature (in its wisdom?) allowed the state created entity to sell property insurance to the general public without giving it one penny for start up costs. In addition, no one with any background in running an insurance company was signed up to run operations. Bureaucrats, with no financial experience, were put at the helm.
Reinsurance? Virtually none. Any new private insurance company writing exclusively property insurance would be required by any insurance department in America to have adequate reinsurance, in the 85% range. You have a state run company writing the highest risk insurance available, in a hurricane zone. It's a no-brainer and for the first four or five years, most of the risk should be covered by reinsurance. Citizens had only a drop in the bucket, and was a disaster waiting to happen when a major storm hit. And of course, as we all know, the worst scenario took place.
So with no proper management, not one penny of capital, and little reinsurance, Louisiana citizens are now on the hook for well over $1 billion. And that's every policyholder of property insurance in the state, not just Citizens’ policyholders. Every property owner covered business insurance will be assessed to pay off the Citizens’ debacle for the next 20 years. The disaster here was certainly not natural but man made.
For the past two years, Citizens has not balanced its check books, prepared financial statements, nor prepared minutes of board of directors meetings. A number of state officials are on the Board. Were any tough questions asked at these meetings?
Now we find out, by viewing the legislative auditor's conclusions, that Citizens has been lavishly entertaining insurance department officials and those running the company by paying for hunting and fishing trips. Louisiana taxpayers will no doubt be pleased to know that their assessments are necessary to cover food, liquor, and other related expenses necessary to properly entertain these public officials.
And can you believe it? The parties involved were defensive, saying that these trips “nurture and enhance relationships with persons and agencies involved.” Apparently, no documentation was kept, and expenses were paid upon “word-of-mouth.” The CEO of Citizens did not say he would immediately put a stop to such junkets, but merely offered that he would do see there is “proper documentation of expenses” in the future.
The conclusion here is simple. Citizens was a disaster from the beginning, and should be, for all practical purposes, shut down and rebuilt from scratch. You would think that members the legislature would take a gander at what Florida has done. Florida had a similar Citizens company years before Louisiana. Their company ran into some of the same problems. Today, the Florida reconstituted company competes head to head with private insurers, and there is no “mark up’ on rates. The results? Property insurance rates in Florida are dropping. Allstate recently filed for a 16 per cent reduction. So something must be working right in the Sunshine State.
While the mismanagement continues, the huge rate increases pushed regularly by Citizens has causes real hardship to many of the 135,000 policyholders forced into real financial hardship. Since the assessments ordered by Citizens are paid by every policyholder in the state, you can imagine their joy when they find out how their money has been misspent. And hey, hunting season is just a few months away.