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.