Hurricane relief? Maybe

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By Jim Mitchell/Editorial Writer - Dallas Morning News, June 5, 2009

I've been really busy this week, so I'm just getting around to posting this update on the Texas Legislature's last-minute partial fix for the state's hurricane insurance dilemma.

This "fix" is important because the Texas Windstorm Insurance Association provides coverage to 229,000 homeowners and businesses in 14 coastal counties who can't find it on the private market.

Some key points:
- Insurance companies had their loss exposure capped at $800 million, which means a small- or mid-sized storm along the coast won't sock the insurance industry with unlimted sticker stock. And we know what happens when insurance cos. get surprised -- they cut back or raise premiums.

- The lege created a bonding mechanism to raise money to cover the cost of major coastal storms. Interestingly they did this to avoid tapping the rainy day for real cash, which I thought was unavoidable. Doing it this way allowed the state to avoid averting $500 million and $1 billion from the railny day fund to recapitalize the insurance fund.

On paper, this "solves" the windstorm crisis and just in the time. Hurricane season is here. But the real test of this "fix" will come when Texas is hit by another Hurricane Ike or two.That's when we'll find out whether the ability to raise money through bonds, industry assessments (and ultimately through consumer premiums) is going to work. Remember, there's no actual cash infusion into the fund, just a promised new funding stream. Only then will we find out whether the state will have to go back to the rainy day fund for cash.

Is this a little bit of an acocunting game? Yes it is. But its far better than allowing the insurance industry and policyholders to enter the hurricane season with an empty TWIA bank account and fewer avenues to replenish it.

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