By W. Gardner Selby - Austin American Statesman, May 1, 2009

Coastal residents would likely face windstorm insurance rate increases of 5 percent a year for the next three years under an insurance rescue plan approved by the Texas Senate this afternoon.

But if a hefty hurricane hits Texas, property-owners from border to border could be required to help pay off bonds issued after the storm. Estimated charges after an event like last year’s Hurricane Ike would run from $85 a year for 10 years along the coast to $2 a year for 10 years in inland regions including Travis County.

The estimated 5-percent-a-year increases for property-owners along the coast would be needed to fulfill the revised plan’s demand that the state’s windstorm system become actuarially sound in the three years, sponsoring Sen. Troy Fraser said.

The proposal, addressing an issue deemed an emergency by Gov. Rick Perry, was embraced by some previously resistant senators from coastal districts because it eliminates previously envisioned insurance surcharges of 30 percent or more for coastal property-owners. It cleared the Senate by 27-4 and awaits House review.

“It’s fair to all concerned,” Sen. Tommy Williams, R-The Woodlands, told Fraser, R-Horseshoe Bay. “You’ve got a real fair plan.”

The measure, revamped since last week during talks involving Fraser and senators representing coastal districts, assumes the Texas Windstorm Insurance Association won’t necessarily buy reinsurance, a tool that helped the association cover some of the billions of dollars in wind claims left by last year’s Hurricanes Dolly and Ike.

Fraser told colleagues the association could yet buy reinsurance if up-front money surfaces to cover such a purchase. The association, a non-profit company, serves as the state’s windstorm insurer of last resort for property-owners in 14 coastal counties and a portion of Harris County.

Fraser, who has speculated about tapping the state’s so-called rainy day fund to raise the money, said after the Senate debate that he intends to ask colleagues negotiating the 2010-11 state budget to earmark $300 million to $500 million in “rainy day” dollars to replenish the association’s Catastrophe Reserve Trust Fund, which was emptied by claims after the two hurricanes. “I will be requesting that,” he said.

Under the latest plan, the trust fund would be the state’s first source for paying claims. Other sources would be tapped in order, depending on the level of claims:

—Insurance companies doing business in Texas would be expected to pony up $400 million in assessments that they couldn’t recoup from premiums or tax rebates;

—Up to $1.6 billion would be raised via reinsurance or post-storm bonds, with the resulting costs covered by surcharges leveled on property owners along the coast and inland.

—Another $300 million would come from surcharges on policies issued statewide by private insurers.

—Another $500 million would in post-storm bonds or reinsurance, repaid by surcharges on policies issued along the coast and statewide.

—And, finally, $2.8 billion in post-storm bonds or reinsurance, repaid by surcharges on property policies statewide.

Summary information provided by Fraser’s office didn’t state the amount of money residents on the coast or inland could potentially be expected to pay if the different claims’ thresholds were reached.

Fraser said after Senate action, though, that if Texas were hit by an Ike-like hurricane, coastal residents could expect to pay $85 a year extra for windstorm coverage every year for 10 years; inland residents including Austin-area residents, he said, could see property insurance increases amounting to $2 a year over 10 years.

Beaman Floyd, executive director of an insurance-interests’ group, the Texas Coalition for Affordable Insurance Solutions, objected to the intended assessments on insurance companies.

Floyd said the $400 million post-storm assessment “could easily affect the ability of insurers to have adequate surplus, as required under law. Without adequate surplus to back policies, the ability of companies to write policies could be restricted statewide.”

Floyd said he also is concerned about the potential for unlimited additional assessments on the insurance marketplace, which would create uncertainty and restrict availability.

Back to Insurance Reform - Texas