An assigned risk solution?

The Corpus Christi Caller and its intrepid reporter Rick Spruill report as follows this morning (this is an edited version of the article):

A plan to effectively abolish the Texas Windstorm Insurance Association in favor of placing coastal homeowners in an assigned risk pool, managed by a third party and overseen by the Texas Department of Insurance, is working its way around the Capitol in Austin.

 

The plan to abolish the association was offered by the four public members of a joint legislative committee established in 2011 to study windstorm insurance issues. It favors requiring private insurers to again write wind and hailstorm policies in coastal counties and follows closely the recommendations made by key insurance experts, including Texas Insurance Commissioner Eleanor Kitzman.

While coastal windstorm insurance experts welcome any plan calling for stronger building codes, the assigned risk scenario may struggle to gain traction in the halls of the state Capitol, said one member of the Coastal Windstorm Task Force.

 

Task force member Greg Smith said attracting private industry back to the coast through assigned risk would lead to exponential increases in coastal windstorm policy rates in the coming decade.

 

Smith said while assigned risk has worked well for workman’s compensation and health insurance lines of business, it is a poor fit for residential policies in a catastrophe zone.

 

He said insurance executives have told him placing residential homes into an assigned risk pool would be “beyond destructive” to the Texas homeowner’s insurance market.

 

For large companies that write billions in homeowner’s business in Texas, being forced into an assigned scenario in proportion to the amount of business they write in the rest of the state could mean multiple billions in additional exposure.

 

That would, in turn, put pressure on those companies to keep enough cash on hand — a central requirement under Texas insurance law — to cover those claims.

Instead of dumping residential properties that private insurance companies will not insure into the Texas Windstorm Insurance Association pool, the plan would allow a property for which the homeowner or the homeowner’s agent cannot obtain a reasonable quote to be temporarily assigned to a private carrier, for 30 days.

During that time the policy would be placed in an online exchange in which all carriers operating in Texas can bid. If the policy is not picked up through the competitive bid process, the assigned carrier becomes the permanent underwriter.

 

The process would be managed by a third-party clearinghouse working under contract with the Texas Department of Insurance.

 

Rates would be allowed to adjust, most likely upward, over a three- to eight-year period to get more in line with the private market.

 

Carriers that post losses because of assigned polices would be eligible for reimbursements from the state.

 

I’ll be discussing this idea more fully in the days ahead, but this is a major development.

2 thoughts on “An assigned risk solution?

  1. Depending on how an “Assigned Risk” plan is structured it could be a cure that becomes a wider problem. Understand that private insurance companies have correctly come to the conclusion that the rates necessary to insure coast regions against hurricanes must be much higher to have any chance of being profitable and won’t be accepted by the politically driven regulators. A full retreat from the East and Gulf coast immediate coastal areas is in progress. Hurricane Sandy pushed this agenda further. A “risk pool” that forces them to substantially subsides coastal risks that won’t let them rate appropriately or recover the subside risk costs by other means won’t work. There is no “Free Lunch” in insurance. Insurance companies spread risk but they can’t pay for risks without passing the overall cost to policyholders. If they can’t recover their risk costs due to price intervention, they will reduce market share or withdraw from Texas. We should not follow the path that Florida has of driving all the well capitalized national insurers out of the state.

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