Comp Blog Commemorates K10: Commissioner Donelon Reflects on Insurance Environment a Decade Later, Cites Comp Market as a Success Story

The event encompassing Hurricane Katrina’s landfall on August 29th, 2005, and the subsequent breach of the federally built and maintained levees that caused 80 percent of New Orleans to flood and killed 1,833 people, also constituted the largest insured loss the world over since 1970, to the tune of $78.64 billion. Louisiana Insurance Commissioner Jim Donelon, who was appointed soon after the storm in early 2006, spoke to Louisiana Comp Blog for our “Comp Blog Commemorates K10” interview series. Read on to learn more about Donelon’s personal experience during the storm, the successes, the failures, and how Louisiana’s insurance environment has changed a decade later.

Comp Blog: Hurricanes Katrina and Rita affected most of the community on a very individual level. What was your experience personally during the storm?

Commissioner Donelon: I live in Metairie, and we’ve had that house on the lakefront since 1975. On that Saturday, my wife and I boarded up our home and evacuated to our daughter’s apartment in Alexandria where other relatives were also staying. It was a very stressful time. We left at midnight on Saturday and picked up my mother, who lives alone, and went straight to Alexandria.

One of the mostly forgotten successful aspects of our experience in 2005 was the contra-flow on the highway from New Orleans to Baton Rouge. Contra-flow had been tried the year before when we were threatened by Hurricane Ivan. The evacuation that took place getting out of Ivan’s way was gridlocked and contra-flow did not work. In my opinion, that experience [with snarled evacuation during Ivan] discouraged some people who then stayed put during Katrina to their peril. In some cases, I’m convinced that [such discouragement] caused deaths. However, the differences between 2004 and 2005 made contra-flow a success during Katrina, saved thousands of lives and made it truly very easy to get out of harm’s way.

Comp Blog: You were at the Department of Insurance at the time of Katrina and Rita. What was happening with your work there during and immediately after the storm?

Commissioner Donelon: I was Executive Counsel [for the Department of Insurance] at the time and was in continuous contact with the office and in particular with then-Commissioner [J. Robert] Wooley. The day after the storm I went back to Baton Rouge for a senior staff meeting that was primarily focused on monitoring the companies that we could tell were going to take hits financially. Our concern initially was whether or not they could pay the claims they owed.

In fact, that was another, very positive and little remembered aspect of  the Katrina/Rita event: companies paid out record amounts in claims, and we did not lose a single company in the process. Now, some did ask for relief, which my predecessor granted and I later reviewed and approved.

Comp Blog: What about losses with Rita in particular? National coverage tends to neglect the impact that storm had on the rest of the state.

Commissioner Donelon: Louisiana Farm Bureau, a single state company, took bigger losses to their book of business in the Rita event than they did in Katrina, which was almost ten times larger in terms of total losses. Their book was concentrated in the Southwest part of the state.

Comp Blog: Are there any ongoing problems in the Louisiana insurance environment since the storm that you can identify?

Commissioner Donelon: As a coastal state, we’re obviously visited by hurricanes often. Texas is number one, Florida is number two and we’re third in line in terms of frequency. There has been an exodus with national carriers, not just from our coastal exposure but from all coastal exposure – from Massachusetts to Miami and around to Mexico.

We were challenged by that exodus, no question, but we have recovered better, in my opinion, than any other state since then and we continue to see companies coming into our state, wanting to write on the coast even with the challenges that we face. That’s the capability of these smaller, regional carriers as a result of the international reinsurance marketplace backing those smaller companies. One company that was here when Katrina hit and had three percent of our homeowner’s market share now has six percent, with twice the coverage that they had in place then. They suffered only $20 million in losses in an event [Katrina/Rita] that cost private insurers $25.3 billion because they were reinsured up to their chin when those two storms hit. That’s how these smaller regional carriers are able to take on this substantial exposure that the major national carriers have pulled back from.

Comp Blog: Even though, as you said, all the claims got paid, do you have an example of an on-the-brink situation in the aftermath from either a local or national carrier?

Commissioner Donelon: Both the local and the national carriers had the good and the bad in the aftermath. We were certainly, big time challenged by the [Louisiana] Citizens [Property Insurance Corporation] book of business for a couple of reasons. Number one, they were in the process on the weekend of Katrina of changing service providers, which included changing computer systems – unbelieveable bad luck. Second, their operation just wasn’t prepared for the onslaught that followed. We have overhauled the professionalism and efficiency at Citizens over the last decade. I am convinced, and they have been tested with Gustav and Isaac, that they can handle it now.

Comp Blog: Turning to workers’ comp specifically, what changes have you seen in the state of the line in the past decade since Katrina and Rita?

Commissioner Donelon: [Workers’ comp] has really been one of best success stories out of this. We have seen an increase in companies doing business in the state to an all-time high of 235, which is a 19 percent increase from the 197 that were writing workers’ comp in 2007, two years after Katrina: 38 companies in 6 years. And our rates over the last ten years have dropped 37 percent, NCCI has continually adjusted our rates down. I don’t take credit for that, and when I ask the consultant [retained by the Department of Insurance to assess the comp market in the state] what’s happening there, they say what’s driving it is a dramatic increase in workplace safety.

 

Editor’s Note: The Louisiana Department of Insurance held a summit on the state of the local insurance industry a decade post-Katrina/Rita on August 11th, 2015. See Louisiana Comp Blog coverage of the event here.

Leave a Comment

Your email address will not be published. Required fields are marked *