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. 😉
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.