Insurance industry representatives said the residual market in the three Gulf states hit by Hurricane Katrina will have no problems meeting their insurance obligations over claims arising from Monday's storm.
During a telephone news conference held today by members of the Property Casualty Insurers Association of America (PCI), they said there is enough cash and reinsurance available to handle the expected claims, and the bonding mechanism in Louisiana would cover any deficit that program may have.
Greg Lacoft, PCI's regional manager for Louisiana, said the state's residual market, Louisiana Citizens Property Insurance Corporation, created two years ago, allows for bonds to be issued to cover any deficits to the plan. Carriers writing property insurance in the state, who are members of the plan, would be charged back over a long period of time to eventually cover the losses. The cost would eventually be passed onto policyholders.
Don Griffin, vice president of personal lines, said Louisiana's plan has $100 million in cash to pay losses and an additional $340 million in reinsurance excess of $35 million.
He said the plan could handle $400 million or more in claims, minus funds needed for operations and additional losses.
Alabama's plan has $8.6 million cash and $50 million in reinsurance excess of a $20 million loss. Mississippi has the least amount of funds available, about $2.1 million in cash, but $175 million in reinsurance excess of $10 million retention.
"We feel [the losses] will be fairly substantial," Mr. Griffin said. "More than likely, many of these plans will have to assess the company members to make up any shortfalls.
"But it is a little too early to tell yet how badly this event has hit those organizations, because they are in similar situations as the primary companies who have to wait to get into the area to see how much damage they got," Mr. Griffin continued.
Louisiana's Citizens Plan is the fourth-largest property insurer in the state, said PCI executives, while Mississippi's and Alabama's plans insure a small pool of property owners along the coast.
Besides the most immediate impact of Katrina on the three Gulf states, there will also be a significant number of claims stemming from tornadoes stirred up in the wake of the storm as it moved through the Ohio Valley, they said.
John Eager, senior director of claims for the Des Plaines, Ill.-based carrier association, noted that claims adjusters are trying to reach the heart of the destruction to begin their work. However, difficulties abound from a lack of local resources, such as fuel and electricity. Law enforcement officials are still not permitting adjusters into some areas, he added.
He said that unlike other disasters where adjusters work their way out of the worst hit areas, adjusters are working their way in toward the disaster zone–they should reach the worst hit areas by early next week.
He added that insurance industry officials said there should be enough adjusters to handle the job, provided there is not another disaster to divert resources elsewhere.
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