NCPA - National Center for Policy Analysis


August 10, 2009

Texas is a model of fiscal stability compared with most other states -- with one glaring exception. Texas is one hurricane away from bankrupting its state-run wind insurance pool, says Matthew Glans, a legislative specialist on insurance and finance for the Heartland Institute.

The Texas Windstorm Insurance Association (TWIA), Texas' insurance market of last resort for coastal property owners who don't have private insurance, is living on borrowed time and borrowed money.  Coastal insurance rates are priced below market and below the risk posed by coastal properties.

This makes coastal voters happy, but it is unfair to inland taxpayers and fiscally irresponsible.  The huge damage claims paid after Hurricane Ike wiped out TWIA reinsurance and catastrophe reserves, says Glans:

  • Last session, Texas legislators struggled to keep coastal voters happy and also stabilize TWIA with new funding sources; the Legislature made some changes to windstorm law that improved the process, but rates remain artificially low.
  • The TWIA's own experts recommended a 19 percent increase on commercial properties and 26 percent increase on residential properties, but state law limited the insurer's board to recommending a maximum increase in coastal rates of only 10 percent.

The rate-hike approval now sits with Texas Insurance Commissioner Mike Geeslin. He has two choices: approve the full increase or respond to narrow populist pressure and deny the increase, says Glans.

Texas Gov. Rick Perry (R) should encourage Geeslin, his appointee, to approve the full rate increase.  This would be a good start toward scaling back TWIA and allowing rates to reflect risk, encouraging responsible building practices and competition that will lead to a greater variety of products at lower prices.  That would be good for consumers and taxpayers alike, says Glans.

Source: Matthew Glans, "Storm Insurance Irresponsibly Cheap," Heartland Institute, July 24, 2009.


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