Claims Advisor: Which insurers are most active in Louisiana for commercial and personal lines? What kind and quantity of claims are they seeing from the oil spill, and what has the insurer response been?
Commissioner Donelon: We're seeing little in the way of contact with the insurers that may have policies impacted by the spill and very little in the way of contact from policyholders lodging complaints. I attribute that to the fact that BP has said it will pay all legitimate claims and it represents that it is financially in a position to do so. BP has contracted with third party administrator ESIS and with Worley, a local independent adjusting firm, to handle claims, and we are engaged with these two companies, both of which hold licenses from our office.
Cleanup operations by Miller Environmental Group on the beach in Grand Isle, Louisiana on 02 July 2010. © BP p.l.c.
Do you find that people are going to BP first for their claims?
Yes, and that's a good thing. I think they should contact BP to try to get an accelerated resolution. We're monitoring the contracted agencies to see to it that there is no inordinate delay. Policyholders may or may not have coverage under their own commercial policy for their losses from business interruption, lack of access to the oyster beds, inability to pursue their commercial fishing activity or loss of revenue for condominium or hotel rentals.
There seems to be a serious problem for many of the Gulf Shore businesses concerning unreported earnings. When BP or an insurer gets business income loss claims, they ask for three years of documentation on earnings to set a verifiable level for reimbursement. It appears that demonstrable earnings for Gulf claimants may be significantly lower than actual earnings.
I hear the comments that this will be a problem, but I'm not sure it is going to be as big of a problem as it might have been a generation ago. [Unreported earnings] are less prevalent than they were in the past because a large portion of our fishery industry ships out of Louisiana, and I don't think you can sell products on a national basis without a paper trail and documentation. For hotels, condominiums, restaurants and such, that won't be a problem, but for those who operate on a cash basis and don't file tax returns, it will be.
Vessels of Opportunity - A fleet of shrimp boats with Boom strung up waiting to deploy when the oil is spotted. Hopeland, LA Area. © BP p.l.c..
Who's running a complaint oversight board and a fraud unit specifically for this disaster?
I have an in-house ad hoc committee of my senior staff with experience and expertise in the property and casualty arena. That group meets on a regular basis to exchange information and determine steps that need to be taken [to proactively monitor] the claims process created by BP. Three dozen of our employees do nothing but investigate consumer complaints. First we answer questions; then, we intercede with companies on behalf of policyholders on a daily basis. We don't have jurisdiction over oil companies, so we can intercede only with their contracted claims adjusters and TPAs.
Do you have any comment on the amount of losses as a result of the Obama administration's shutdown of the fisheries and other oil wells? Do you feel the ban on fisheries may have been too soon?
The fisheries are unavoidable, and everyone is being proactive in erring on the side of caution. We absolutely cannot afford to take a chance on spoiled food products getting into the human food chain. Along with oil and gas, fisheries are as big as it gets down here. All it's going to take is one such event, and our hospitality industry will be devastated.
Having said that, the shutdown of the deep-water oil operations, which has the immediate effect of putting tens of thousands in the unemployment line, is devastating. All of the parish presidents in coastal Louisiana and the fishing industry are urging the reversal of that decision.
We are suffering down here. Economically, we're not feeling it [completely] yet because we're seeing a flow of money to try to rein in this catastrophe and people are temporarily going to work in that effort. But six months from now and a year from now, our state will be decimated. Our sister states will see significant adverse effect as well, economically, if we are not allowed to continue deep-water operations, which I would point out have been done safely for decades until now.
There are 33 operating deep-water rigs off of the Gulf Coast that are shut down. The ripple effect of the shutdown is putting tens of thousands of people out of work as we speak. There is talk that lobbyists for those operators have been able to get concessions on blowout preventers that other countries do not allow. There is conversation that Canada requires mirror or relief wells, like the two [BP is] drilling now. I'm hearing that we should consider what Canada requires when allowing the drilling of a deep-water well—that a backup well be drilled at the same time. It would double the cost, but if it is cost-effective in Canada, it can be cost effective in the Gulf of Mexico as well.
Have you made any headway with the U.S. Congress to retroactively include flood insurance coverage for contaminated ground?
I sent a letter to our entire delegation last week and urged them to fight for additional coverage in the reauthorization. There is such controversy surrounding the NFIP at the congressional level…I'm not optimistic that even a united coastal delegation could be successful in getting expanded coverage even for this one-time catastrophe. However, we're working toward that and asking for it to see if we can get some help. It won't be a huge problem if we don't have storm surge associated with a hurricane event, but all predictions are for an active season. That makes us leery of what oil-contaminated water pushed ashore by a hurricane would do to our land.
Each year you conduct a "Storm Tour." Do you find people are spending the extra money to purchase flood insurance in preparation for an unusual threat this hurricane season?
[The Storm Tour] is an annual effort to convince folks as we enter the hurricane season to be prepared, have an evacuation plan in hand, know their insurance coverages, know their deductibles, and take their policies with them so that they can access their agent and or company in the event of a hurricane. I urge everyone from Grande Isle to Shreveport to take advantage of the federally subsidized National Flood Insurance Program. Only 40% of Louisiana victims of Rita and Katrina had flood insurance. That was good compared to our neighbors on the Gulf Coast and in Mississippi where only 20% have flood coverage. Last month when Nashville was inundated with an unusual flood event, only 10% of property owners there had flood insurance in place. All of us in Louisiana are vulnerable and should have coverage—it's the best insurance buy out there, no question about it.
Have you noticed a bump this year in the purchase of these policies?
Actually, yes. We have about 2,700 more policies in place this year than last. We saw a significant bump the year after Katrina, but as memories faded, '07 and '08 saw decreases.
Are people becoming less willing to gamble with flood insurance?
Yes, for two reasons. Part of why we were 40% covered for flood when Rita and Katrina hit was that, since 1978, every five years we had a so-called "100-year rain storm," particularly in the metropolitan New Orleans area. Those events put water into tens of thousands of urban and suburban homes. That taught us some painful lessons. [The second reason is that] the suburban and the metropolitan New Orleans areas are, for the most part, below sea level and the federally backed mortgage industry requires flood insurance as a condition of getting a loan. That helps us a lot. Next door in Mississippi, you saw beautiful beachfront homes washed off their slabs. They were generally about 20 feet above sea level but were washed away by the storm surge. At their level, they were not required to have flood insurance even to access federally backed mortgages.
What are the most active insurers in your area?
The largest commercial policy writer in the area pre-Katrina was Travelers. In the New Orleans area it was dominant. Three and a half years ago, it expressed the desire to non-renew 80% of its commercial book. After we exerted a large amount of urging…Travelers announced it would stay on 60% of its coverage. State Farm is number two in the small commercial market. We also have had the arrival of a South Carolina-based company, Companion Property & Casualty, which accessed $2 million of grant money through a program we started during Governor Blanco's administration—the Insure Louisiana Incentive Program. Companion has concentrated its effort on small commercial, filling to a large extent the vacuum left by Travelers' downsizing. All indications are that we have private sector capacity available for our commercial needs in the insurance market because in 2008 our residual market, Louisiana Citizens Property Insurance Corporation, a state-created market of last resort, had a high-water mark of 13,000 commercial policies and as of our last board meeting a month ago that number was down to 6,000. So we have seen over the past two years a reduction in that commercial book in Citizens to half of what it was two years ago.
The capacity is what changed, or their use of options changed?
Both. If there had not been the capacity, there would have been nowhere to go for those small commercial policyholders. What stimulated that exodus was a 130% rate increase that Citizens took on its commercial book three years ago—having not adjusted its commercial premiums for some time prior, although the law requires it to do so each year. It has done so for the last three, however. For the last two years, no adjustment has been necessary because its rates are now above the private sector, again indicating that the private sector is competing aggressively for business.