About Half of Riot Victims Uninsured, Survey Shows

About half of those who suffered losses in the Los Angeles riots were uninsured, a new survey shows, adding a major obstacle to the region’s rebuilding efforts.

The amount of riot damage covered by insurance is more than $500 million. But by the accounts of the victims, uncompensated damage is at least $421 million and perhaps much more, according to the survey by the state Department of Insurance, the first comprehensive accounting of uninsured losses.

Insurance payouts are the prime source of capital for restoring businesses, so the extent of uncovered losses is a major blow to the reconstruction push.

“It leaves a gaping hole of money that’s not available to rebuild,” Deputy Insurance Commissioner Tom Epstein said Thursday.

The survey results were released Thursday during a daylong hearing on insurance issues arising from the riots.

Insurance Commissioner John Garamendi used the survey and sometimes poignant testimony from riot victims to pound away at two main themes: that the major insurance companies discriminate against inner-city neighborhoods in their underwriting, pricing and hiring policies, and that unlicensed, financially shaky insurers have filled the void and are preying on merchants and consumers.

“We cannot survive in California if the state allows the insurance industry to discriminate in many ways against half of its citizens,” he said.

One-third of those who have policies were grossly underinsured, with coverage averaging only 10% of their losses, the survey shows.

An example is Golden Bird Inc., a popular chain of chicken restaurants in South Los Angeles and Compton.

Of Golden Bird’s 10 company-owned outlets, only two escaped damage in the riots. Two were burned to the ground and six others were looted or otherwise damaged, company President Michael Stennis testified.

“I feel that we have to rebuild at any cost,” he said. “We’ve been here so long, and the company is a mainstay in the so-called black community.”

But Stennis does not know how he can rebuild.

Insurance for the two destroyed outlets totals $115,000--nowhere near the losses. Stennis said his recovery depends on whether his landlords are willing and able to restore the restaurants. If so, he can probably replace the equipment and get back in operation with a combination of insurance settlements and Small Business Administration loans.

In reaction to the under-insurance problem, Garamendi announced proposed changes in the California Fair Plan--the industry-sponsored insurer of last resort--which he said would put more flesh on its bare-bones coverage.

Garamendi also said the department would soon issue new regulations with incentives for insurers to do business in historically underserved neighborhoods and penalties for redlining, or blanket denial of coverage in certain areas.

He said he is “on a mission” to get the insurance industry “to change its color, its face” by placing more women and minorities in key executive positions.

Garamendi announced action on another riot-related front: the move to give rebuilding jobs to minority contractors. He said the state’s major insurers agreed in a meeting Wednesday to provide lists of qualified minority-owned contractors to their customers.

In the face of complaints that it throws construction work to preferred--mainly white--contractors, the insurance industry has maintained that policyholders make most of the decisions on whom to hire.

However, Joseph Kung, whose shopping center at Pico and La Brea burned down in the riots, said his insurance company’s adjuster resisted his efforts to give his demolition business to a friend and neighbor, a black contractor.

“If I want to use my contractor, I have nothing but trouble, and as a businessman (I) don’t want trouble,” Kung testified.

A panel of five independent insurance agents--all minority-group members--testified during the hearing about their difficulty in getting appointments enabling them to sell policies from such major carriers as Farmers, Allstate or State Farm.

“We’ve been knocking on their doors for the last five or six years, but they do not open their doors to us,” agent Sunny Kwon said.

At a break in the testimony, a Fireman’s Fund representative started exchanging business cards with the witnesses. Kwon said it was the first time a major carrier had raised the possibility of giving her an appointment.

Garamendi likened the flurry of activity to a “job fair.”

The riot-damage survey was based on telephone interviews by Insurance Department staff with 1,859 of the 3,500 people who called a toll-free riot-damage hot line set up by Mayor Tom Bradley’s office. The surveying continues in an effort to create a more detailed picture of the damage.

The 710 respondents, or 38% of the total, who said they had insurance reported damage of $465.7 million. But 273 of those people said they were underinsured, many greatly so. Of the $371.8 million in losses that they suffered, only $37.1 million was covered, leaving $334.7 uninsured.

Eight-hundred ninety respondents, 48% of the total, said they had no insurance and suffered losses of $87.1 million. Of this group, nearly half said insurance was too expensive; another 17% said that they couldn’t find insurance.

Epstein, the deputy commissioner, cautioned that because the survey relies on self-reports of damage amounts, it could be inaccurate. It also fails to take into account the victims who did not contact the hot line or failed to answer some questions.

But some findings were bolstered by the testimony of Ryan Song, executive director of the Korean-American Grocers Assn., who estimated that half of the organization’s 3,300 members were uninsured.

Another part of the survey dealt with losses by unlicensed or “non-admitted” insurance companies, which are allowed to sell policies in California only through specially licensed “surplus lines” brokers. These brokers reported $34.1 million in riot-related claims by 29 unlicensed companies.

Garamendi has said that he fears many such claims will not be paid because the companies are either financially shaky or outright frauds.

Earlier this week, Garamendi ordered brokers not to sell any more policies issued by five unlicensed Caribbean-based companies. One carrier, Pacific Fire & Marine Insurance Co. of the Turks and Caicos Islands, had $3 million to $4 million in riot-related claims but had a surplus of “no more than $224,406--far below any amount acceptable or adequate to pay claims,” Garamendi said.

Brian Cho, a broker for Pacific Fire & Marine, testified that the company has paid $1 million worth of claims and that “every day, adjusters are meeting (with policyholders) and settling more claims.” Cho declined to comment after his testimony.