Coastal property owners demand insurance handouts
Owners of hurricane-prone properties are trying to pass the price of their high-risk choices onto all Texas property insurance holders this week, manipulating a little-observed corner of state politics while most of us are not paying attention.
Coastal home and business owners will crowd into a Texas Wind Insurance Association meeting in Corpus Christi on Dec. 10 and refuse to pay their fair share. They want you and me to subsidize more of the cost of insuring their property or rebuilding it when the next storm hits.
Texas’ 367 miles of coastline exposes the state to all dangers the Gulf of Mexico can muster. Every two-to-five years, the warm water produces a storm capable of literally blowing the roofs off our economy. The problem for policymakers and the public is how to insure against those predictable disasters.
Whether due to location or condition, a market-based premium to insure some coastal properties would exceed what anyone can pay. To provide affordable wind and hail coverage for those properties, the Texas Legislature formed the Texas Wind Insurance Association.
This quasi-governmental entity requires private insurance companies to put aside $1 billion for about 200,000 high-risk properties; a cost passed on to the rest of Texas’ property insurance policyholders.
TWIA, pronounced TWEE-ah, is also obligated to collect premiums from the property owners who depend on it, as well as issue bonds to ensure it can pay claims. But Hurricane Harvey and other storms have drained TWIA’s reserves and used up all the bond money, creating a financial crisis.
Owners of high-risk properties have only made matters worse. They have fought every attempt by TWIA’s board to raise premiums to an appropriate level. According to 2019 forecasts by an independent actuary, TWIA’s residential premiums are 40 percent below what is necessary to maintain solvency, while commercial rates are 50 percent inadequate.
Inadequate premiums have been a persistent problem. TWIA’s board tried to implement a 10 percent increase for 2018 but demurred when Gov. Greg Abbott asked for a postponement until
Gray Gant, 51, walks through a Port Aransas apartment damaged by Harvey.
the 2019 legislative session.
Since Abbott and the Legislature did nothing to improve TWIA’s balance sheet, a hike is still necessary. But owners of high-risk properties flooded a public meeting on Oct. 17, submitted hundreds of angry letters, and decried what they see as cruelty in the aftermath of Hurricane Harvey.
One refrain has been “one state, one rate,” which challenges a fundamental principle of insurance, which is that premiums should be based on risk. A homeowner in Schulenberg should not pay the same rate as someone living in Galveston.
TWIA is broke and failing to collect adequate premiums even though the law requires it to balance the books. The TWIA board meets on Dec. 10 to consider a 5 percent premium hike, and local politicians are threatening a fight.
Eighteen coastal lawmakers signed a bipartisan letter to the purportedly independent TWIA board demanding a premium freeze.
“We also expect that the TWIA Board and Committees show respect and attention to Texas legislators’ requests,” the letters concluded. The pressure is on, but no inland lawmaker has come to the board’s defense.
The TWIA’s board decision will affect every Texas taxpayer and policyholder. More broadly, they will be making a statement about whether a small clique can push their massive financial risk on to all Texans.
Failing to require owners of these high-risk properties to pay a higher premium creates a moral hazard. Subsidized insurance discourages property owners from spending their own money to strengthen buildings or relocate to higher ground.
A financially unstable TWIA will also collapse when the next major storm hits. What do you think will happen when coastal property owners file billions of dollars in claims, and TWIA cannot pay?
Lawmakers will either force property insurance companies to raise rates on inland property owners and pay the bill or raid the Rainy Day fund and use tax dollars that could have been used for something more beneficial to all Texans.
No one is proposing an immediate premium increase of 40 percent or 50 percent, but the TWIA board should begin the incremental process of raising more money and building to establish an actuarially sound reserve fund.
Recent hurricanes have taught us that storms are becoming more frequent and powerful; we need to make sure our insurance program keeps apace.
There is nothing wrong with insurance companies in Texas taking a small portion of our premiums to create an insurer of last resort. But those living or doing business along the coast must help pay a fair share for the risks they take.