Computer Problem Blacks Out La. Citizens’ Records

March 8, 2007

Computer problems have blacked out the financial records of Louisiana’s state-backed insurer of last resort for months, and it may have to recreate its books from scratch, state officials acknowledge.

The problem could endanger nearly $1 billion the Louisiana Citizens Property Insurance Corp. borrowed to pay for hurricane damages, as well as forcing it to hire “warehouses” of people to recreate the records.

“This a huge problem,” said Insurance Commissioner Jim Donelon. He called a meeting Mar. 7 to discuss alternatives for the company that sells property insurance for buildings and homes when private companies refuse.

State officials brought in an out-of-state consultant to try to extract data that is locked into Citizens computers. If it cannot, the agency will have to hire people to go through documents page by page to rebuild the records.

“It won’t be a handful of people. It will be warehouses full,” said Terry Lisotta, Citizens top administrator. “That will cost buckets of money.”

“I can vouch for me and my senior staff: We have done nothing wrong,” Lisotta said after the Legislative Auditor briefed a group of legislators and state officials in a private meeting.

“We may have made mistakes. But we made them from commission instead of omission, and we made them based on the best information available during the catastrophe,” Lisotta said.

Citizens has pieces of its financial records on computers but cannot generate the financial reports required by bondholders, said Donelon.

He is worried how the investors who hold the almost $1 billion in bonds will react.

“That is my top concern,” Donelon said. “But the bondholders are secure.”

Donelon said he has not received any complaints from property owners who purchased policies that now cannot be found. But he said he is worried about potential problems for Citizens’ estimated 136,000 customers.

Fixing the problem will be costly, he said.

“It’s going to be labor intensive, and anything that’s labor intensive is going to be expensive,” Donelon said.

Donelon said he is seeking legal advice on who would be responsible for the cost.

“Policyholders would not bear the cost. It’s possible that (insurance) companies doing business in the state would bear the costs,” he said.

Every June, Citizens must submit a financial statement to the Legislative Auditors Office. An outside auditing firm is supposed to look at the insurer’s financial activity from January to December and write a report.

Legislative Auditor Steve Theriot said Citizens is nine months overdue on its 2005 audit.

Theriot said he did not know the extent of the problem until Citizens’ outside auditor quit last week.

The Metairie accounting firm of Pepperman, Emboulas, Schwartz & Todaro notified Citizens board of directors in a Feb. 23 letter that it was withdrawing because of continued delays in completing financial records and underlying accounting records.

Lisotta, chief executive officer of Citizens Insurance, said the company has 10 different software programs that do not talk to each other.

He said he gave a copy of the company’s whole computer database to an Atlanta consultant to see if the information can be extracted electronically.

Information from: The Advocate,

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