Texas Windstorm Association passes the cowboy hat to cover Ike

We knew it would come to passing the hat – that’s the way these state windpools work – and that it would have to be a Texas-sized hat and passed more than once.  The results from round one are in and the surprise is Allstate got the short straw and came out owing more than State Farm.

The state’s second-largest home insurer will pay the most in the state windstorm association’s initial round of assessments.

Allstate Insurance Group must fork over $65.5 million to the Texas Windstorm Insurance Association, which sells coverage to coastal homes and businesses that can’t find it elsewhere.

Allstate declined to comment.

The windstorm association can, by law, turn to insurance companies that do business in the state to help it pay claims once it runs out of its own funds. The $2.1 billion the association had on hand, which included $1.5 billion in reinsurance and a $370 million catastrophe reserve fund, was wiped out by Hurricane Ike.

The amount companies are required to pay is a function of how much business they do statewide and on the coast. Those with more policies on the coast, deemed more risky because of the potential for hurricanes, pay less than those that don’t.

Nearly 60 percent of the $430 million assessment will be paid by the state’s five largest insurers, Allstate, State Farm, Farmers, USAA and Travelers.

Lumbermen’s Underwriting Alliance and National American Insurance Co. have the lowest bill so far at $4,200 each.

Jim Oliver, the association’s executive director, wanted to assess companies $830 million, but company representatives on the association’s board objected.

The board plans to meet next week in Austin to discuss additional assessments to cover the association’s estimated $4.2 billion hit from Ike. As of Monday, the association had received 64,659 claims…

What’s next? Try the two-hat-pass on for size.  chart here shows how much each insurer had to put in the hat on the first round.

Since the hat collecting from insurers gets passed for as many rounds as required – it takes a second hat for insurers to recover the cost from their customers.  Ouch! That’s a pretty tight hat right now.

Companies may also face higher prices for the reinsurance when it comes up for renewal, a cost they then factor into the rates they charge their customers.

Some insurers declined to comment on how they will pay their assessments, saying only that they were prepared…

The industry as well as the association have long warned that the windstorm association needs a new structure for funding, saying it puts too much of the costs on the shoulders of the industry and taxpayers.

Anything added to the shoulders of consumers is too much in the current economy – and that goes double for consumers trying to recover from natural disasters and the unnatural disaster in the money market.  It can’t be too costly for the industry, IMO, or Congressman Taylor’s legislation would have passed – makes you wonder if the crisis in the money market is that some want more than they’ve had before.

A chart here shows how much each insurer has to put in the hat.

8 thoughts on “Texas Windstorm Association passes the cowboy hat to cover Ike”

  1. We are less than a month into settling Ike claims and the TX is already declaring this level of shortfall. It only proves the pools are totally underfunded. The carriers will file increases to cover these losses as they should since private insurance is not an entitlement program.

    I know many will disagree with me on this board, but this is proof-positive why adding wind to the NFIP is a bad idea. Consumers/taxpayers will pay for that also, only it will disguised as tax increases from our already over extended Federal government.

    If the people who run the TX wind pool were a private enterprise they would be indicted for this type of mismanagement. However, they immune, because the citizens of TX will pay for their incompetence. Governemnt should not be in the insurance business.

  2. NFIP could not possibly be this bad. We would handle an Ike and a Gustav easily because of the premiums from Florida, the Carolinas, and other places that did not have much in wind claims this year. It’s called spreading risk. Insurance once understood the concept.
    Every insurer paying an assessment in Texas and every inland taxpayer should prefer wind and flood together in a federal policy to this situation.

  3. RE: “If the people who run the TX wind pool were a private enterprise they would be indicted for this type of mismanagement.”

    Board of Directors
    TWIA is governed by a nine (9) member board of directors comprised of five (5) insurance company representatives, two (2) agent representatives and two (2) consumer representatives.

    Five directors are elected from the membership of the Association, two directors are appointed by
    the Texas Department of Insurance from the public sector based on nominations by the Office of
    Public Insurance Counsel and two directors, who are licensed local recording agents, are appointed
    by the Texas Department of Insurance. Of the five directors elected from the membership, a
    minimum of three members shall be from companies with multi-state operations and a minimum of
    one member shall be from a company domiciled in the State of Texas.

  4. But Sup you said not allowing reserves to be built was a good thing because the pols would gett heir hands on and spend the money. Now you complain because the state pool was underfunded.

    Now I know only a good Republican would think it is a good idea to have an offshore reinsurer rape it’s citizens with high insurance premiums to prevent the possibility future pols MIGHT raid the state windpool and spend the money.

    It is also the Republicans that say we want a handout while stuffing big taxpayer money into the Mississippi state pool to buy overpriced reinsurance.

    And I think I heard a Republican this week say on the TV he is pushing a program to give state tax money to homeowners that wind mitigate their porperty to help pay their wind premiums.

    Leave it to the Republicans to figure ways to stuff my tax dollars into the pockets of a offhore reinsurer.

    Mississippi Democrats have passed a policyholder bill of rights patterned after those in neighboring states. The Republicans in the State Senate have killed it twice. It doesn’t cost the taxpayers a nickle or stuff money into the pockets of a reinsurer so I guess I understand why they are against it.

    Bottom line is open up your checkbook and start paying the assessments and quit yer bitching. These windpools are the brainchild of the insurance industry, are run for the financial benefit of the insurance industry and prove exactly why HR 3121 is needed.

    What is this I hear that the Hartford is going down? At the rate these moneychangers are folding up Sen. Dodd may not have many Hartford insurance interests left to look out for when this is done.


  5. Sop, I was obviously not clear. I do not oppose these funds building capital for these events. It is a good idea to build capital and take some excess to buy as much reinsurance as possible.

    My point was it is not feasible because politicians will not craft a bill to protect those funds. Idle funds to politicians are like coccaine to a crack addict, they can’t stay away from them. Now, if the legislation provides that they are “off limits” to the pols I would definitely be in favor of the funds becoming more viable.

    Hope that clears up my position.

  6. I understood what you said Sup but I wasn’t going to let you have it both ways. Now if you were explaining to me why the GOP is going to get it’s ass kicked in less than a month I would tend to agree such silliness would be the exact reason why.

    For the record Nowdy’s post Mississippi dreaming mentioned the NC beach plan has $500MM of capital accumulated without state interference. Mississippi has done a good job with it’s tobacco settlement trust fund too.

    One thing I’ve learned post Katrina, when we elect ppl to office that claim government can’t do anything right I’ve found that the prophesy becomes self fulfilling. It’s common sense because if one does not believe in the functionality of an institution, regardless of the reality, they are bound to do a crappy job running it. I wouldn’t hire an employee who felt that way about my small business and I suspect that is also true at large insurance companies too.

    Why we put these yahoos in office is anyone’s guess. Katrina opened my eyes Sup just as the polls indicate the financial meltdown has opened up many others.

    I’m counting down the days.


  7. Before Katrina, in the years without a hurricane the insurance companies in the state divided up the surplus rather than let it build a reserve fund.
    They were in charge from the beginning, with insurance company representatives holding 5 of th 8 MWUA board seats.

  8. Clarification of the above comment: I am talking about the Mississippi Windstorm Underwriting Association, aka the Mississippi wind pool.
    The industry’s “experts” are blaming the states for the poor design of these state risk pools, but the states set them up exactly as the industry demanded.

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