“As we wait for the insurance market to stabilize, keeping money flowing into the wind pool is critical for thousands of Gulf Coast families and businesses.”
House Insurance Committee Vice Chair Brandon Jones, D-Pascagoula
“Wait”! How long? What possible incentive is there “for the insurance market to stabilize” when states are willing to pick up the tab? None. Nada. Zero. Just not going to happen!
Mississippi’s return on investment in the windpool since Katrina is an additional 28,000 property owners depending on the State to cover loss from wind damage to their property – 44,000 total, according to the story in today’s Sun Herald.
The state Legislature has passed a bill containing an extra $20 million for the homeowners’ insurance wind pool.
The bill has $20 million in new money for the wind pool from a disaster-reserve fund, plus $18 million to finish previous legislative commitments to the program.
After Hurricane Katrina, many homeowners were unable to get coverage from the private insurers. For them, the state-backed wind pool insurance program was the only option.
About $187 million in federal and state money has been pumped into the wind pool since Katrina.Gov. Haley Barbour’s spokesman, Dan Turner, said Thursday Barbour hasn’t seen the bill yet.
“That legislation hasn’t been delivered to the governor,” Turner said. “Once he gets it, he’ll review it and make a decision.”
Barbour has said the state doesn’t have the $20 million to spare from the fund because it owes the federal government a large tab for matching Katrina funds.
The governor has said he wants a focus on stronger construction in South Mississippi instead of the Legislature’s proposal to continue pumping money into the wind pool.
Some Coast lawmakers, including Sen. David Baria, D-Bay St. Louis, have said they don’t see the wind pool money and the FEMA home-strengthening program as an “either-or” proposition and want the state to take advantage of both.
Representative Jones said, “We feel confident this appropriation will help keep wind pool premiums stable during the coming year”. Maybe so. I wonder if “we” is as confident of the stability of other state-funded programs and services.
5 Legislative sessions and the best the gang can come up with is shipping more tax money offshore to Bermuda. Jones doesn’t call the shots so I have a hard time blaming him as that honor goes to Phil Bryant and his band of idealogically blinded idiots in the State Senate, but if Mssr Jones thinks 44,000 policies in a wind pool in a tiny state is some sort of functional “market”, his daddy didn’t teach him much about money, which I have a hard time personally believing.
I wonder how many elementary schools in Biloxi would have closed had there been a few insurance alternatives available?
Meantime because of those silly forgivable loans The Gov and MDA gave out the rental market is overbuilt, under occupied and places like Waveland overflow with more low income (tax credit) housing than it had pre Katrina, with still more units in construction that no one wants to live in except crack heads.
And the answer isn’t to make everyone poor paying for insurance and then give away handouts to the newly created underclass likes them U Penn professors would like.
The lesson here is the tacit acceptance of a dysfunctional insurance market rendered useless a huge portion of recovery and rebuilding funding Uncle Sam poured down here as illustrated by the complete failure of REACH Mississippi where even free money wasn’t enough to get people back into housing.
An election year is coming so look for the pols to break out the shinola trying to cover the mess.
sop
Sop, if there are 44,000 “clients’ in the MS windpool it is grossly underfunded as you are probably aware. It is the same old dilemma we have discussed before.
The only way to attract the “private” market is to allow adequate rates. Unfortunately, the MS Gulf Coast is not upscale like much of the SC coastal areas. The current population could not handle that pricing. The SC coastal market is becoming competitive with more and more carriers because they see the potential for profitability.
If I had the answer I would not still be working.
Sup, you still don’t get it.
Mississippi doesn’t keep rates too low. The wind pool has to buy reinsurance at rates that are at least 5 times more than the expected claims. This is about the stupidity of a system that creates a stand-alone insurance pool in a 60-mile high risk location where every year the pool has to be prepared to pay everyone at one time if a major hurricane hits.
Regulated premiums are not the problem for insurance companies. They are all going to limit their exposure in each area so they don’t have to set aside the capital to pay everyone at once and they don’t have to pay the outrageous reinsurance rates that the wind pool is forced to pay.
Adequate rates or actuarial rates are not a fixed number. If you diversify your risk or spread it geographically you don’t have to pay everyone at once so your capital requirements are lower compared to the risk in the pool. If you are like the MS wind pool you are forced to buy reinsurance every year to cover a 1 percent chance event and the reinsurers have to pay 20 percent returns to investors each year to put up the capital so almost all the premium is going to investors and not into reserves for paying claims.
This is why the actuarial rates for a federal government hurricane insurance program would be less than the actuarial rates for the wind pool and less than the actuarial rates for a private insurer. The federal government would spread the risk more efficiently and not have to ssen most of the money to reinsurance investors.
The insurance companies all know this. That is why all their proposals include a federal reinsurance backstop so that the federal government would bear the costs of accounting for the capital to cover a low-frequency high-severity event but the insurance companies would keep almost all of the premiums. Good deal for them, not for taxpayers or consumers.
I dare any insurance company or III or ISO or anyone else to publish their estimates of expected claims losses on the Mississippi Coast and then show me any insurer that is not charging at least three times more than that in premiums.
I looked up your South Carolina wind pool and found the same problems as Mississippi except that SC is not recovering from being wiped out.
Here is the SC Wind Pool 2009 financial report:
http://www.scwind.com/pdf/Yr2009Q4Prelim.pdf
Page 13: 45,885 policies; $17.2 billion insurance in force
Page 4: Premiums written: $96,468,252
Reinsurance premiums ceded: ($91,147,739)
So the SC wind pool also is sending almost all its premiums to reinsurers and is set up to be gouged when the next major hurricane hits anywhere and the reinsurance industry goes into “hard market” mode and demands higher premiums for less risk.
To the extent that private companies are writing policies in South Carolina, I suspect that they are cherry-picking the expensive, well-built homes but limiting their overall exposure in the market.
Brian, there is no question the private sector is “cherry picking”. It is called underwriting the potential risk. The one main difference is the SC coast is broader than the MS coast. What I mean here is the potential for a huricane hitting a high percentage of the MS Gulf Coast is much more likely than the SC coast. Also the wind pool does not cover any entire coastal county in SC so there has to be private sector coverage for those outside the wind pool areas and there is. In MS we are looking a six entire counties being in the wind pool where in SC the pool, to my knowledge, does not cover any property over 15 miles from the Atlantic Ocean.
As I posted earlier, I don’t have the answer.
Either the risk modelers are complete morons or they have a scam going with the reinsurers. Follow me through a few steps:
Here is the report on the SC wind pool reinsurance
http://www.scwind.com/pdf/SCWHUA2009ReinsuranceProgram.pdf
The SC pool has $17.2 billion in exposure, with three localized areas (Beaufort, Charleston, Horry counties) where $4.5 to $6 billion in exposure is bunched together. I assume those clusters of exposure are on the islands or near the coastline and would would get the highest winds and therefore the wind pool would have to cover the severest losses from a hurricane.
The SC wind pool buys $1.3 billion in reinsurance coverage supposedly to cover a 150-year event. But look at the AIR and RMS loss estimates:
AIR:
50-year loss: $466 million:
100-year loss: $911 million;
150-year loss: $1.29 billion
RMS:
50-year loss: $635 million:
100-year loss: $1 billion;
150-year loss: $1.3 billion
I don’t need any software programs to know that neither of these are right. The slope of the severity line should be getting much steeper the farther you go to the right on the probability scale.
Think about it this way:
100 mph winds cause moderate damage;
120 mph winds do not cause 20% more damage than 100 mph winds; they cause two or three times more damage;
140 mph wind do not cause slightly more damage than 120 mph winds; they cause much more severe damage.
If a 150-year hurricane has higher winds and a larger wind field than a 100-year hurricane, then there is no way that the increase in insured losses to the wind pool would only be 30% (RMS) or 40% (AIR). So the risk modelers are either overstating the 50 & 100 year losses or they are understating the 150 year loss or both.
I suspect they are low-balling the 150-year loss estimate to con the wind pool board and politicians into believing that the $91+ million in reinsurance premiums is worth it because it covers a Hugo. It doesn’t cover a Hugo or similar direct hit on one of the population clusters on the South Carolina coast. Hugo supposedly would cause $8 billion in insured losses today, according to the 20-year anniversary release from the SC Emergency Management Agency. If the wind pool has $2 billion of that, which I think is a reasonable estimate given the current exposure, then the wind pool is $700 million short in reinsurance cover. These bogus numbers also are conning the trusting insurance companies because they are the ones on the hook for assessments if a hurricane exceeds the reinsurance coverage.