As people gather in advance of today’s Senate insurance committee hearing Steve reports Commission Chaney has announced several items with respect to State Farm’s participation in the insurance market here in Mississippi. Today is an unbelievably busy news day.
The Farm’s Hurricane deductible will be reduced from 5 to 2% and the Farm will resume writing renters policies in the upper 3 coastal counties. The focus is evidently on EA (agent) revenue enhancement as the Farm’s sales force has been hamstrung for the past couple of years by terrible claims handling and the Farm’s refusal to write new HO (Home Owners) policies here.
I’ll update this post as news trickles in. Steve asked me to pass along his regards to the Senate committee. 😉
sop
Update:
Per Steve there was a lot of talk about the coast being the economic engine of the state: “As the coast goes the state of Mississippi will go with it” Mr Chaney said.
Sen Buck Clarke also acknowledged the importance of insurance and rebuilding the coast. State Farm representative Steve Simkins spoke telling the panel how great State Farm did handling claims after the storm and that if the policyholder bill of rights passed threatened that insurers would leave Mississippi. He was especially concerned with the Anti concurrent clause ban and stated Mississippi would be the only state to restrict the use of the ACC in that way. David Baria spoke and contradicted Simkins saying the MS PEER Committee review on other state’s restrictions on the ACC found 15 states that severely restrict it’s application. He would give the report to the Sen Insurance committee when PEER released it.
The impression Steve had of the entire affair was the affirmation of the coasts economic importance to the state was to set up Mr. Joe Shumaker of the wind pool. Reinsurance costs have risen according to Mr Shumake the wind pool would try to hold the line to the current premium structure. He also stated higher policyholder deductibles may be coming.
Ron Peresich of the Gulf Coast Business Council spoke in support of the cash infusion saying the resulting economic actively it stimulated would pay for itself in return tax revenues. According to Mr Peresich our high costs of insurance has already meant lost business for the coast in favor coastal locales with cheaper rate structures. He gave alot of examples how the high costs of insurance has stifled growth here.
Mayor AJ Holloway also spoke in favor of the wind pool subsidy.
So this leaves us back to the points Brain made here yesterday:
It (the wind pool) is supposed to be a risk pool backed by insurers, not by taxpayers.
Before Katrina, the insurers took any reserves that built up. Since Katrina, the pool is permitted to build a reserve but the cost of reinsurance makes that impossible.
The pool has a reserve of about $60 million which is only one percent of the insurance in force. It has a deductible of $20 million and then there are several layers of reinsurance totaling $470 million of the next $550 million. Ther other $80 million is self-insured retention to be paid by the wind pool and/or state taxpayers. The $80 million is in scattered pieces of risk in between layers of reinsurance.
The $470 million of reinsurance cost $65 million in premiums. Passing that cost on makes the homeowners premiums completely unreasonable and unaffordable except that the state has used federal and state taxdollars to pay a large share of the reinsurance cost.
There is no chance that the wind pool will build up reserves, because if it were possible to raise premiums, the insurance representatives that control the wind pool would demand that it buy more reinsurance coverage to shield the companies from the assessments for losses above $570 million.
I think the bottom line is the permanent way out of the cycle of buying expensive reinsurance against the hope something good will happen later is a terrible use of taxpayer money. It helps upstate GOP politicians pay lip service to our needs while stuffing ca$h into the insurance industry’s pockets. Check. It helps insurers who dumped thousands of taxpaying Mississippians into the wind pool. Check. Does it help the taxpayers? Not so fast. It may indeed pay for itself. I’d rather they cut my taxes by my pro rata share of the $20MM.
Nowdy have you heard anything. Feel free to chime in.
sop
The only real problem with the plan to put money into the wind pool is that the wind pool itself has made it clear that it does not want to reduce insurance rates. So that is a big problem. It will be hard to force the wind pool to cut rates. For example see Florida.
Could you explain the what and why of the Windpool’s position, Steve – and thanks for taking the time to attend and report.
The wind pool was set up as an insurer of last resort for people who’s homes were deemed too risky to insurance by the private market. It does not view itself as desiring to compete with the private sector and thus purposely has a goal of having rates higher than the private market.
The wind pool take the position that if it prices itself cheaper than the private market it would motivate people to enter the pool who actually belong in the private sector.
The speaker today noted that he wanted to shrink the size of the wind pool and not increase it.
The wind pool also makes the rest of the state become insurers of last resort for the program. So this scares many non-coastal Senators. (In my opinion).
The Mississippi wind pool, was established by the state Legislature in 1987 for to provide wind and hail insurance policies for high risk properties in the six Mississippi coastal counties that private insurers will not insure.
The pool is funded through customer premiums. Losses in the Pool are paid by a combination of assets on hand, reinsurance and if necessary, assessments against property policies written by private insurance companies throughout the state.
What a difference a month makes—
Property Progress in Mississippi
Chaney is proud of his state’s approach to modernizing its wind pool.
“I was in the state legislature when we modernized the wind-pool bills and gave them the ability to do cat bonds if they were needed. We shored up the plan and made it solvent, actuarially sound, contrary to what was done in other various states. I don’t want to pick on any state, but we didn’t want to go the route that Florida had gone, or go the route that Louisiana had headed towards. So we took our own ship and fixed it. We’re running very well,” he said.
He said the pool went from needing a 56 percent increase in premiums on the Gulf Coast to offering 11 percent average reductions, with some reductions as high as 22 percent.
“So we’ve done some things right. When you, as the commissioner, can announce a rate reduction in property and casualty, buddy, you’ve done something. So we think we’re doing the right thing,” Chaney said.
He said the pool is doing so well there could soon be another reduction in rates.
The insurance rebuilding effort has also involved taking building code enforcement seriously, including educating local politicians and mayors about the importance of uniform codes and enforcement. The state now has mandatory building codes in key coastal counties.
“I’m enforcing building codes and I’m saying to folks, ‘If you want wind pool insurance and the state-run wind pool, you have to have standardized building code.'”
Chaney has also made sure the insurance industry is aware of the state’s progress. He has an education package he uses to show insurance carriers what the state is doing in enforcing building codes.
Even more important than the educational efforts are the premium discounts he has negotiated from insurers for homeowners who build or retrofit their structures to comply with the new building codes. He said at least three major insurers would announce before the end of the year that they will give discounts up to 35 percent for building back or retrofitting existing homes to building codes.
“They’re sliding scales. If you put straps down, you may get 5 percent. If you fix your roof sheathing, you may get another 5 percent. All the things you do — impact windows, shutters on the windows — it builds up. Then, in addition to that, if you put all your eggs in one basket with that company, where you may have your automobile in addition to all of the other things that you insure, then you can stack those discounts and get as much as 50 percent discount on your homeowner’s insurance,” he said.
While Chaney thinks the discounts will have beneficial impact, he is convinced that rebuilding Mississippi’ markets is a multi-faceted challenge.
“[Y]ou don’t have just one silver bullet to try to solve the problem. It takes a lot of people working together. And to entice those companies to come in and write property and casualty insurance, you really have to have more than one thing going at one time.”
http://www.insurancejournal.com/news/southeast/2008/12/03/95923.htm
I know alot can change in a month. But last month Cheney felt confident enough to indicate the wind pool was doing so well we might get a rate reducation. Today he didn’t seem so confident and the report from the wind pool wouldn’t lead anyone to feel a rate reduction was in the cards. The wind pool representative indicated re-insurance rates are going to be between 10 to 30 percent more this year. He said the number 15 percent was actually most likely. I report this because I know this came as a big disappointment for Mr. Chaney as he was hopefull we might be able to cut our wind pool rates again.
Thanks Steve
Mississippi Insurance Chief Chaney Reports Progress in Rebuilding Markets
December 3, 2008
He said the pool went from needing a 56 percent increase in premiums on the Gulf Coast to offering 11 percent average reductions, with some reductions as high as 22 percent.