One way not to promote sanity

An opinion column in the Corpus Christi Caller by Nick Jiminez uses the issue of whether Insurance Commissioner should be an elected position in Texas as a vehicle for repeating bogus arguments about hurricane insurance in Texas.  Now, I don’t really have a stance on how that position should be filled — we seem to vote for an awful lot of offices here in Texas — but I do know that the points addressed in support of Mr. Jiminez’s position don’t make much sense. And I do believe that repetition of bogus arguments and this form of “messaging” is not a constructive way of addressing the serious problems facing the Texas coast.

I will list several of Mr. Jiminez’s arguments in turn and attempt to debunk them.

1. The Insurance Commissioner is unaccountable as evidenced by her inability to answer a question posed by State Rep. Todd Hunter at a hearing last month.  The question was how much the 14 coastal counties contribute to the Texas economy.  The correct answer was apparently 30% according to a study. But the question asked does not have a single “correct” answer.  To be sure, the coastal counties contribute immensely to the Texas economy, but there is not a single number that reflects this point. Moreover, I am willing to wager with Mr. Jiminez that if one were to have used the methodology employed by this study to come up with the 30% number, one would have found that the area around Dallas contributes a large percent, and similarly the area around Houston, and Austin and the Panhandle, etc. such that the total “contribution” would add up to well over 100%.  The problem, I suspect, is not with Commissioner Kitzman (or the other officials stumped by Rep. Hunter at the hearing) but with a question, that unless made far more precise, is objectionable.  Moreover, even if this Insurance Commissioner fumbled on this occasion and didn’t seek clarification of an ambiguous question posed by a good lawyer, this is hardly an argument for changing the political system.  Do you think that many of our elected officials would be able to respond on the spot to similar vague “statistical” questions?  I don’t.  Do you think that Commissioner Kitzman is unaware of the large contribution made by the coast to the Texas economy?  I don’t think so either.

Note.  I don’t begrudge Rep. Hunter making a thinly disguised argument in a legislative hearing.  I do begrudge those who would use the failure to answer an objectionable question “correctly” as a good reason to change our political system or to criticize the incumbent.

2.  Tropical cyclone insurance rates should be lower in Corpus Christi because it has not had a hurricane in 40 years.  This argument is wrong in so many ways.  First, hurricane risk is not tropical cyclone risk.  The area with 60 miles or Corpus Christi has been hit or brushed by tropical cyclones 34 times in the 140 years since records have been kept.  It gets hit by hurricanes on average once every 15 years.  TWIA and other cyclone insurers pay for high winds and named storms, not just hurricanes. As anyone who remembers Allison can say with confidence, tropical storms can be incredibly expensive events.  You can’t just ignore them. Second, the fact that Corpus Christi has been fortunate in recent years is little more likely to predict future performance well than the fact that the Astros had won four in a row on May 25, 2012, and were almost at .500.   Although it may be legitimate to claim that Corpus Christi appears to be less at risk for hurricanes than other parts of the Texas coast, it is not legitimate to cherry pick time periods and measure risk on that basis.

3. “If South Texas were a person buying car insurance, we would be getting a price break, not a huge bill as we are now.”  I won’t dispute that the bill is large, but the real issue is whether the bill is large relative to the risk.  If it were, Mr. Jiminez must explain why it is that private insurers are not beating down the door to write windstorm insurance in Nueces County.  Some vast conspiracy to not make money?  Moreover, if coastal politicians truly bought this argument, they must explain why they oppose TWIA basing its rates on geography rather than the essentially uniform rates that currently exist.

4. “Electing a commissioner would allow the poor and low-income voters, who often can’t afford steep windstorm rates, to have a say in who sets insurance rates.”  This point has some merit, but I have serious doubts it would help the Texas coast.  A lot of the poor and low-income voters about whom Mr. Jiminez appears concerned do not live on the coast.  They are currently subsidizing coastal residents — many of whom have houses far more valuable than theirs and owned by people who are considerably more wealthy — by letting  rich and poor on the coast alike purchase coverage at rates that do not reflect actuarial reality.  And the more expensive the house, the greater that subsidy. It is those poor about whom Mr. Jiminez claims concern who will end up paying parts of the assessments and surcharges to pay for claims suffered by rich and poor TWIA policyholders.  So, I’m not so sure the poor of El Paso and Dallas and, yes, Amarillo, will be eager in an election to vote for the candidate who pledges to continue the sort of subsidies for the coast that now exist.

All of that might explain why, in the end, Mr. Jiminez kills his own straw man  — is there a serious push to make the position elective?  He concedes that “[t]he real focus of an effort to bring some sanity to coastal insurance rates ought to be the next Texas Legislature, not fighting to get the insurance commissioner on the ballot.”  On this point, I probably agree, although I guess I wonder why one would then embark on a long rhetorical journey so hostile to the current Commissioner.  But sanity will not be made more likely by use of coastal newspapers to advance arguments that, no matter how frequently repeated, just do not hold water.

The Big Hearing in Austin

There is so much to talk about!  In fact, so much, that I’m just going to provide links tonight and save more extensive blogging for the next few days.

1. The Joint Interim Committee to Study Seacoast Territory Insurance held a four hour hearing in Austin today to discuss major reforms of TWIA.  Leading figures were TDI Commissioner Eleanor Kitzman and TWIA chief John Polak.  I testified briefly along with about 30 others. Corpus Christi State Representative Todd Hunter questioned who had invited me (Governor Perry’s office) and stated displeasure with what he regarded as a negative approach in my July op-ed, honoring me with a dramatic reading of that work’s final sentence. Other active legislators involved in the discussions included Craig Eiland and Juan Hinojosa.  Although a consensus on how to proceed was not reached, perhaps all could agree that debate and discussion was vigorous?

2.  If you asked me what the “headline” of the hearing was, it was the consensus among the witnesses that TWIA is really, really broken.  Kitzman, Polak and the Office of Public Insurance Counsel all agree that the organization is not actuarially sound. I fear we may be heading for a “health care” third rail, however, in which all agree that the system is broken but prefer it as second best over all but their favorite competing system.  The idea of a statewide cat risk pool appears to have some traction among some constituencies.

3.  Here are some links to press accounts of the hearing.  Corpus Christi Caller; Texas Tribune; Houston Chronicle (AP).  It’s possible you can watch a video of the hearing by clicking on this link.  My segment is from 2:28 to 2:36.  (You can get it to work on Macs by downloading an old copy of Real Audio from http://cache-download.real.com/free/support/mac/RealPlayer11GOLD.dmg)

4.  Last Friday, the Texas Department of Insurance released the Alvarez & Marsal report, a $350,000+ study of ways in which TWIA could be reformed.  This is a document with which all sides in the discussion will need to grapple.

5.  An interesting comparison of the Texas windstorm insurance market with those of other coastal states was produced.  Here’s a link to this informative report.  Again, I’m not sure we want to emulate every feature of these other state systems, but they provide some ideas and norms.