Cape Cod Insurance Update
Posted by: Brian Martin (12-08-2008, 12:01 PM)

The Harwich Oracle ran a guest commentary from Paula Aschetino, chairwoman of Citizens for Homeowners Insurance Reform, about the continued failure of the private insurance market on Cape Cod and the resulting pressure to raise premiums and deductibles in the Massachusetts FAIR Plan.

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Louisiana Citizens raises premiums
Posted by: Brian Martin (06-24-2008, 03:18 PM)

Citizens raises policy premiums; Statewide average boosted 18 percent Rebecca Mowbray Times-Picayune 24 June 2008 Homeowners insurance rates at Louisiana Citizens Property Insurance Corp. will increase by a statewide average of 18 percent in October as premiums at the state-sponsored insurer catch up with the dramatic run-up in prices from private companies after Hurricane Katrina. The rate increase is the first to take into account the changes in the private market since the storm. Barring another hurricane sending shocks through the insurance market this season, customers are unlikely to see further increases at Louisiana's third-largest residential insurer. "This is probably it," said John Wortman, chief executive of Citizens. "I think we're probably reaching the peak of rates now." Assuming they are approved by the Louisiana Department of Insurance, the rate increases will start taking effect Oct. 1 as policies renew each month. The rate increase will not make a meaningful difference in the special assessments paid by all owners of insured property throughout the state to pay back the nearly $1 billion in bonds issued to pay Citizens' claims after Hurricane Katrina. The annual assessment, which was 5 percent this year, is expected to be slightly less than 5 percent next year. In some parts of the New Orleans metropolitan area, the actual Citizens rate changes will be much higher. --- Some increases higher --- The biggest jumps will be in Jefferson Parish, the state's second most populous parish, where homeowners insurance rates will rise by an average of 35 percent. Rates for dwelling/fire policies, essentially a bare-bones residential policy with depreciated value coverage that does not include liability or displaced living expenses, will rise by 26 percent in Jefferson. In St. Tammany Parish, homeowners insurance rates will rise by an average of 15 percent, less than the statewide average. Dwelling/ fire policies will go up by 26 percent, the same as in Jefferson Parish. But rates are not expected to change in Orleans Parish. The reason, Wortman said, is that rates were already high before the storm, so private insurers didn't raise rates as dramatically after the hurricane. In setting rates, Citizens calculates what it needs to be actuarially sound, then calculates what private insurers are charging in each parish and adds 10 percent, then charges customers the higher of the two. The 10 percent mark-up on Citizens' policies is designed to make sure coverage from the state-sponsored insurer of last resort is more expensive than at private companies to discourage people from buying policies with the state plan. Rate changes would have been even higher, but last year the legislature passed a law removing the 10 percent markup in hurricane- affected parishes where the private market is deemed non- competitive. --- Reacting to the market --- But one problem with the plan to make Citizens unattractive to potential customers is that rates always lag the private market since they, by definition, react to what private companies are doing. And Citizens was so busy after the storm that it was slow in calculating rate changes. Citizens did raise homeowners insurance rates last year in the first rate change after the storm, but the increase was only a statewide average of 7 percent because it was calculated on data from before many insurance companies had boosted their prices. This year's rate increase is the first one that reflects the market post- Katrina, Wortman said. Prices for Citizens commercial policies and wind-only policies are not expected to increase this year after taking big jumps last year, Wortman said. The rate increase is set to begin Oct. 1, because that's the date that 26,885 Citizens policies are being transferred to private companies. Those policies will be rewritten on private company stationery as they renew for the next 12 months starting in October as part of a "takeout" program created by the state. That leaves about 133,000 households that could be affected by the rate changes. "The bad news is that the marketplace has gone up really high. The good news is that the takeout is going to help," Wortman said. --- Clearing out policies --- Insurance Commissioner Jim Donelon predicted that the Citizens rate changes will push another group of people out of Citizens. Citizens customers will be highly motivated to check out the private company options that should start to become available in the coming months, he said, and the companies that won incentive grants from the state need to pick up additional customers in the hurricane- affected parishes to fulfill their commitments to the state. "I think this will result in another huge exodus of policies from Citizens this fall, assuming we have a successful hurricane season," Donelon said, meaning no hurricanes. "These companies still need more policies than they got in the first round." Assuming Gov. Bobby Jindal signs a bill that would finance another round of incentive grants for companies to take policies out of Citizens, Donelon and Wortman said they would like to institute another round of takeouts in the fall to spare as many people as possible from the Citizens rate increases.

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Texas Wind Pool Update
Posted by: Brian Martin (06-24-2008, 02:41 PM)

Major storm on coast could have big financial impact statewide David Shieh 16 June 2008 Austin American-Statesman As fallout from Hurricane Katrina triggers major shifts in Texas' insurance landscape, residents across the state - including Central Texans - may find themselves saddled with tax increases and higher insurance premiums if a catastrophic storm hits. With private insurers drastically cutting back on hurricane coverage along the Gulf Coast, coastal residents are flocking to the Texas Windstorm Insurance Association - more commonly known as the state windpool - in record numbers. As a public-private partnership that provides "last resort" coverage to coastal residents, the windpool has long relied on state money as a backstop for policy payouts. But not until now - with the windpool's liabilities nearly triple what they were when Katrina hit three years ago - has the state stood to lose so much from the arrangement. The problem has gained attention at the Capitol. With potential losses in the billions of dollars from the state's general revenue fund, legislators worry that a major hurricane would force them to cut services or raise taxes. At the same time, consumers across the state would be hit with skyrocketing premiums by insurers scrambling to cover their losses. "You've got a house that's burning," said state Rep. John Smithee, R-Amarillo, who spearheaded failed legislation to reform the windpool's finances in 2005 and 2007. "Nobody's putting the fire out, and it's getting worse instead of better." At the root of the problem is the growing number of Texans in hurricane-prone counties who have been abandoned by private insurers no longer willing to cover central components of hurricane coverage: wind and hail damage. Allstate, for example, stopped writing new wind policies in 14 counties along the Gulf Coast in March 2006 and declined to renew the 69,000 wind policies already in place starting that November. State Farm, which together with Allstate sells the lion's share of the state's homeowners insurance policies, has stopped writing new wind policies on houses within a mile of the coast in those counties if applicants do not already have an auto policy with the company. The exodus of private insurers, who say they worry that gigantic losses in coastal areas would threaten their ability to insure other customers , has left many coastal residents with few options, said Otie Zapp, head of an insurance consumer advocacy group in Galveston . Zapp, who worked as an insurance agent for more than 40 years , said windpool policies are less than ideal: The coverage isn't comprehensive, the paperwork is a "nightmare" and the policies are often more expensive than private ones. But Zapp said countless locals - or at least the ones who can still afford wind coverage - have gone to the windpool, which now insures more than half of wind policyholders in the coastal counties it covers, double the amount before Katrina. "Nobody wants the windpool," Zapp said. " But people grit their teeth and pay the money." With that shift has come an unprecedented amount of financial strain on the windpool that is threatening to spill over to the state. Under its financing plan, if the windpool were besieged with claims after a major hurricane, about $2.3 billion would be paid for through funding sources with few consequences for the state, windpool General Manager Jim Oliver said. Those would include premiums collected from policyholders, reinsurance policies and money collected from all insurers licensed to write property insurance in Texas, which are required by state law to be members of the windpool. Beyond that $2.3 billion, though, the state would start to take a hit. Member insurance companies would front the money, but they would then be given tax breaks, which could drain billions of dollars from the state's general revenue fund. Because a storm of sufficient scale has not hit Texas during the windpool's existence, Oliver said, it has never had to dip into state money. For example, Hurricane Rita, which hit in 2005, cost the windpool about $160 million - far short of the $2.3 billion threshold for state involvement. Based on the windpool's models, though, a strong Category 3 storm hitting Galveston would cost the state's general revenue fund $1.3 billion. A Katrina-level storm, equivalent to a Category 4 hitting Galveston, would set back the state fund as much as $3.7 billion. The money lost from such a storm would force the state to raise taxes unless financing was cut to services such as education or Medicaid, said University of Houston professor Seth Chandler, a specialist in insurance law. Simultaneously, the state would have to spend hundreds of millions to billions of dollars on reconstruction, increasing expenses and potentially inflating taxes even further, he said. For Texans across the state, the resulting tax increases would coincide with skyrocketing insurance premiums as insurance companies scrambled to front billions of dollars in policy payouts, Chandler said. Some smaller insurance companies might be unable to come up with the money and declare bankruptcy, Chandler said, but the industrywide collapse that some legislators have warned of would be unlikely. The problems have been hotly debated in the Legislature, but bills proposed by Smithee in 2005 and 2007 that would have shifted the financial burden off the state did not pass. State Sen. Mike Jackson, R-La Porte, who threatened to filibuster Smithee's bill in 2007, said that legislators agreed that the state windpool's financing plan needed to be changed but that disagreements over how much of the financial burden coastal residents should be responsible for ultimately derailed the bill. Other states have not found perfect fixes, Chandler said. Louisiana's windpool, which like Florida's puts the monetary burden on policyholders rather than the state, was left with a $954 million deficit after Hurricane Katrina. The state announced that windpool policyholders could see surcharges of up to 20 percent - on top of regular premium increases - until the deficit is paid off. In Florida, all homeowners insurance policyholders are still paying surcharges of 4 percent to 5 percent for windpool losses from the 2004 and 2005 hurricane seasons. Hurdles aside, it seems likely that the windpool's problems will be revisited in the next legislative session in January, especially as the Texas Department of Insurance, which oversees the windpool, comes under scheduled legislative review. A preliminary report from the Sunset Advisory Commission, which conducts the periodic reviews, recommended last month that the Insurance Department reduce its oversight of the windpool, giving the windpool freedom to raise premiums to offset its rising liabilities. But those recommendations have been criticized by legislators and nonprofit groups who say that rate increases high enough to cover the windpool's liabilities would be unfair to consumers. Meanwhile, in Galveston, where more than 20 percent of residents live below the poverty line , residents are scrambling for solutions. Though some people have complained that the state is simply subsidizing insurance for millionaires who decide to build second homes in hurricane-prone areas such as Galveston, Zapp can easily tick off the stories of locals who lead much less extravagant lives - the high school classmate who couldn't afford to insure his house, the "little old lady" whose income and insurance disappeared when her husband died. "They call it anecdotal," Zapp said. "But, boy, is it real."

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Expansion of State Insurance Pools in North Carolina, South Carolina, Texas, Georgia, and Alabama
Posted by: Brian Martin (05-02-2008, 04:12 PM)

Much has been written and said about the insurance crises in Florida, Mississippi, and Louisiana. The figures below were found on the websites of the state-sponsored insurers of last resort for North Carolina, South Carolina, Texas, Georgia, and Alabama. This data shows how quickly and dramatically insurance companies have dropped coverage in the coastal areas of other Gulf and South Atlantic states, forcing property owners into the wind pools and other state-sponsored insurance pools.  The North Carolina Beach Plan’s liability grew from $17.8 billion $65.9 billion in four years – the plan covers $16.7 billion in New Hanover County alone; The South Carolina’s Wind Pool’s liability grew from $5.4 billion to $16.1 billion in four years; The Texas Wind Pool’s liability grew from $38.3 billion to $58.6 billion in ONE YEAR - the wind pool covers $17.9 billion in Galveston County alone; The Georgia Fair Plan’s liability in windstorm-only coverage grew from $565 million to $2.17 billion in three years;  The Alabama Beach Plan’s liability grew from $341 million to $1.6 billion in three years.  These state pools have severe limitations. They are not allowed to build up sufficient reserves to cover a major catastrophe, so they are forced to pay excessive rates for reinsurance coverage from a weakly regulated and uncompetitive industry. Single state pools tend to concentrate risk so that much of the pool would be hit by a single event. Mississippi, Alabama, Georgia, and South Carolina have relatively small coastlines of from two to six counties. Florida, Texas, and North Carolina have coastal cities where substantial risk is concentrated in the state pool.  The proposal to allow coastal residents to purchase wind and flood coverage in one policy from the National Flood Insurance Program would stabilize these coastal markets, spread coastal risk broadly and more efficiently, and eliminate the disputes over the cause of damages that are unavoidable when wind and flood coverage are provided by separate policies. The government would not be subject to the volatility and manipulation of the private insurance market that follows every major disaster.   The government would be able to set risk-based premiums based on the estimated losses, using the risk models and data currently used by the state pools, state insurance commissioners, and private insurance companies. 

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Reinsurers Gouge Texas Wind Pool
Posted by: Brian Martin (05-02-2008, 03:28 PM)

The chart in the attachment below clearly demonstrates why the reinsurance industry is leading the opposition to Congressman Taylor’s proposal to allow the National Flood Insurance Program to offer wind coverage at risk-based rates. State risk pools are forced to buy reinsurance at prices far exceeding the estimated risks and anticipated losses.   The Texas Wind Pool is proposing to purchase $1.5 billion of reinsurance above a self-insured retention of $600 million. That means the wind pool will cover the first $600 million in wind pool losses, with the reinsurance covering three layers from $600 million to $2.1 billion. The reinsurance premiums will cost $201.25 million.   The first $500 million reinsurance layer, from $600 million to $1.1 billion, will cost $86.25 million. That means the wind pool will pay a premium that is more than 1/6 of the insurance coverage where the risk models estimate there is a 1 in 12 chance of needing any reinsurance and a 1 in 22 chance of needing the entire $500 million.     The next $500 million layer, from $1.1 billion to $1.6 billion, will cost $62.5 million. The wind pool will pay a premium equal to 1/8 of the coverage where the probability of reaching $1.1 billion is estimated to be 1 in 22 and the probability of reaching $1.6 billion is about 1 in 35.   The third $500 million layer, from $1.6 billion to $2.1 billion will cost $52.5 million. The wind pool will pay a premium that is more than 1/10 of the coverage where the probability of reaching $1.6 billion is estimated at 1 in 35 and the probability of reaching $2.1 billion is about 1 in 45.   The Texas wind pool is not alone in being gouged by the reinsurance industry. The Mississippi wind pool is paying $65 million in premiums for reinsurance to cover $470 million of the first $570 million in wind pool losses. The wind pool has a self-insured retention to cover the other $100 million. The Texas Department of Insurance Commissioner’s Agenda for May 1, 2008The Commissioner of Insurance will consider the following matters: Docket No. 2683:  Consideration of petition by the Texas Windstorm Insurance Association requesting approval of a reinsurance program to operate in addition to or in concert with the catastrophe reserve trust fund established under Subchapter J, Chapter 2210 of the Insurance Code.   TWIA's Petition and Attachment  

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