The Times Picayune reports with the end of a Louisiana state emergency rule, insurance companies will begin terminating policies tomorrow…
When mail delivery resumes Tuesday, thousands of home and business owners in south Louisiana may start receiving termination letters from their property insurers after a New Year’s Eve expiration of a special emergency rule that has held insurance coverage in place since Hurricanes Katrina and Rita.
For all practical purposes, most property policies will not be canceled until after March 1 because of notification and inspection requirements by the Louisiana Department of Insurance. And in many cases, property owners won’t get dropped until their policies come up for renewal, meaning that the insurance termination process will unfold throughout the year.
But the end of Emergency Rule 23, which required insurers to keep covering a property even though its risk profile had changed because a house was damaged and unrepaired, unoccupied or in a sparsely populated neighborhood, marks an important transition in the state’s shattered insurance market.
For tens of thousands of home and business owners, the end of Rule 23 will be a painful moment. Getting dropped by their insurance company will force them to take out coverage with the Louisiana Citizens Property Insurance Corp., the state’s insurer of last resort, make a decision to bulldoze or repair, or go without insurance coverage altogether.
“It’s another hardship. It just keeps snowballing,” said Rosalind Peychaud, executive director of the Neighborhood Development Foundation, a nonprofit that works to increase homeownership in the city. “If people can’t get or can’t afford insurance, we’re going to have a lot of blighted housing.”
Insurers must physically inspect properties for a “material change in risk” and give 30 days to correct the problem and another 30 day notice of cancellation which will spread the cancellations over time. The TP article relates that insurers are not happy with criteria such as a building permit of proof that owners are repairing their property and if the Louisiana Department of Insurance pushes too hard to protect homeowners from cancellations that “insurers are likely to go to court.” One consumer group called this “standard industry bluffing.” Insurance industry reps “see the market loosening up a little bit” in the fall…that is if the state doesn’t enact “cumbersome new restrictions” and more important if the area is hurricane free in 2007.
Clearly risk in coastal states is being moved to state insurance programs which will likely be one major disaster away from bankruptcy. Then what? Yes there are surplus insurers but who will be able to afford their unregulated prices?