Very few surprises came out of a report released this month by the Texas Sunset Advisory Commission about the windstorm insurer for thousands of coastal property owners.
That the Texas Windstorm Insurance Association, which covers about 240,000 policies on more than $60 billion in property value, is broke, in debt and facing a shrinking revenue pool is nothing new.
To remedy all that, Texas lawmakers would need to decide whether to keep the association, a windstorm insurer of last resort for thousands of county property owners, or allow it to act as a free-market insurance company that could more flexibly adjust its premiums, the Texas Sunset Advisory Commission said in its report.
The Texas Windstorm Insurance Association, created by the Legislature in 1971, was intended to be a residual market property insurer, serving as a coverage source of last resort for businesses and people who have been rejected by the voluntary market insurers.
The association has a goal to depopulate and lawmakers have designed initiatives to provide the association’s policyholders with alternative options for wind and hail insurance. It has seen some success with that, but private-market insurers haven’t exactly flocked to the opportunity to cover the very high-risk properties along the coast, as seen by the fact that most of those policies, virtually all of them, are still on the association’s books.
The association exists because private insurers over the decades fled the market, phasing out windstorm coverage for homeowners along the state’s coastline. Those insurers apparently couldn’t find the balance between risk and profit, and if they did, realized they would likely price themselves out of the market.
The question then is how would allowing the association to operate as a quasi free-market enterprise achieve a result better than the actual free market experienced? Maybe there’s a way, but it’s certainly not apparent.
Allowing the association to raise rates as much and as often as it wanted certainly would help depopulate the program, as consumers unable to pay the high premiums were forced out of coverage.
What then? What would the option of last resort be if it’s no longer the Texas Windstorm Insurance Association?
There’s a perception among some inland lawmakers that people live along the coast because they enjoy life on the water, and some do. Most, however, live here because a huge part of the state’s economy is based here at refineries, ports and the seafood industry. Where are those vital workers going to live if they can’t afford something as basic as insurance?
Rather than give the association a free hand to increase rates, lawmakers should require it to find ways to spread the risk, perhaps by attracting thousands more policyholders by keeping premiums affordable. Or, the state could force private insurers who want to sell auto and other highly lucrative insurance on the coast to also sell windstorm policies.
Whatever the solution might be, it can’t include leaving consumers at the mercy of the private market.
The private market for windstorm insurance didn’t work before, and it’s hard to see how it would work now.
• Laura Elder