Too big to fail: Can Texas solve windstorm insurance?
Corpus Christi Caller Times
By Rick Spruill
CORPUS CHRISTI — Building a consensus among lawmakers on how to rebuild the Texas Windstorm Insurance Agency always has been a challenge. It’s not going to get any easier next legislative session.
Suggestions for diffusing costs of providing insurance to coastal counties by creating an interstate pool among several Gulf Coast states have gained little traction.
Instead, some coastal leaders and lawmakers have said Texas should find a way to make windstorm and hail insurance coverage an attractive enough business proposition for insurance carriers to return to the coast.
Deep feelings and knowledge of what is at stake should unify the politicians in Austin, not divide them, said Port Aransas attorney Charlie Zahn, an expert in windstorm issues.
Zahn said he will never forget watching Hurricane Celia in 1970 blow away his Port Aransas home, his first purchase after graduating from law school.
He had lived there 29 days, he said.
“Just like that, it was gone,” he said.
The memory serves as a reminder that the state should come together, he said.
Zahn was instrumental in drafting a plan that will be presented this week at Department of Insurance hearings with the goal of a solution similar to what exists in Florida, where the entire state shares the risks for windstorms.
“Texas is either one state or we are not,” he said. “Isn’t that what they always say?”
Today in Austin, state Department of Insurance Commissioner Eleanor Kitzman will testify before the Senate Committee on Business and Commerce in a hearing expected to include state Sen. Juan “Chuy” Hinojosa, D-McAllen.
Kitzman, who provided an advance copy of her four-part, 50-page testimony, will testify on why Texas’ homeowner insurance costs are rising so high and compare costs in other states.
Hinojosa’s questions and Kitzman’s answers to them may set the stage for how well the insurance industry, state lawmakers and appointed officials such as Kitzman can work together next year to develop outcome-based legislation.
The department analyzed the Texas residential homeowners insurance market in six regions and found that inland homeowners pay $5.91 per $1,000 of coverage while homeowners in Tier-1 coastal counties pay 78 percent more, $11.68 per $1,000.
The department also noted that, while costs are higher on the coast, so are the risks: Tier-1 losses-per-policy from 2001 to 2011 averaged about $1,500 per $1,000 of coverage.
But if coastal leaders believe insurance rates are too high, windstorm rates remain too low based on the risk, the association’s actuary in November 2011 told the Joint Oversight Committee on Windstorm Insurance.
Jim Murphy told the committee that raising rates by 5 percent each year still is not enough to close the gap between what the association expects to pay in claims arising from a catastrophe and its cash reserves.
“My indications are that the residential rates will need a further 22 percent and the commercial rates will need an additional 29 percent,” Murphy testified.
State Sen. John Carona, R-Dallas, expressed alarm at what he said was the Legislature’s lack of work addressing a funding shortage.
Coastal leaders say there is rarely concern when inland hail or tornadoes wreak havoc.
“But if we had a $2 billion storm in Corpus Christi, there would be questions over who’s on the hook (to pay for it),” Corpus Christi Chamber of Commerce President and CEO Foster Edwards said last week.
A June 12 storm in the Dallas area had $1.2 billion in insured losses, the fourth costliest storm to hit Texas since 1950, according to the Insurance Council of Texas.
Five of the 10 costliest storms since 1950 have been hail or tornadoes in North Texas that have resulted in insured losses of $5.6 billion, according to the council.
Texas Insurance Council Executive Director Mark Hanna said the idea that a storm in Dallas raises rates in Corpus Christi is not accurate.
“The state is divided up into territories. Large counties such as Dallas, Harris, El Paso … are their own territories,” he said.
State Rep. Raul Torres, who as a freshman in 2011 was a member of the House Insurance Committee, said conversations with insurance industry representatives suggest more than a passing interest in re-entering the coastal market.
“I know firsthand that the private insurance carriers are ready to enter the market and would welcome competitive and productive market reforms,” Torres said in his June 18 newsletter.
Torres said the carriers want a level playing ground with the association that by design is not set up to compete in the private markets, something he said could be accomplished by changing the way actuary tables are calculated.
Another incentive would be to allow carriers to raise rates depending on a how old and under what construction code a structure has been built and then further adjusting the coverage cost based on its distance from the water, a concept known as tiering.”A house near the coast would be rated differently than one farther back in the county,” he said.
State Rep. Todd Hunter said the 2009 reform legislation called on the Department of Insurance and the association to hold public meetings designed to bring the insurance industry and communities to the table to seek solutions together.
It hasn’t happened, he said.
“We seem to have amnesia through all these agencies,” Hunter said. “They’re Rip Van Winkle. They’ve been asleep.
“They’re talking about spreading risks while we are talking about availability.”
What angers him, he said, is the semantic debate.
“They’re talking about rate hikes when we talk about premium costs,” he said. “The private carriers continue to drop policies and the association picks them up while being subject to specific regulations on costs.”
