This past week, I was chided by State Representative Todd Hunter as having “come off negative to the coast.” I didn’t have a chance in the crowded hearing room with a three minute time limit to respond then and there, so let me try now.
I do not think I am negative at all to the Texas coast. I actually like the coast. I go down to Galveston a few times a year with my family and enjoy the sand and water. (I could do without the traffic between Houston and Galveston, but that’s another story.) I have friends who live on the coast. Some were badly hurt by Hurricane Ike. I feel badly about that and I feel badly about their insurance situation. I’ve enjoyed bird watching and photography both in Winnie and Port Aransas. Perhaps it’s my lack of perception, but people on the coast don’t strike me as much different than other Texans with whom I generally get along just fine. So, if the issue is some sort of personal bias against the coast or some dislike of its geography or scenery, that’s just utterly, totally not true.
I suspect, however, that’s not what was meant. I suspect what was meant was that I haven’t supported the coast in getting a lot of help from other Texans or the Texas government in dealing with its insurance situation. I haven’t demonized the insurance industry as the cause of the problems. And I haven’t expressed a lot of sympathy for the predicament in which coastal residents find themselves. I think I can fix one of the problems, but probably not the others.
Sympathy. I do sympathize with the insurance situation of people on the coast. I don’t like the fact that many of them, particularly the less wealthy, have to pay high prices for insurance. I sure wish hurricanes weren’t a correlated risk of low frequency events that pushes prices higher.
But I also sympathize because they are the victims of a misguided government program which, every year it continues, tends to make the situation worse. I sympathize because they are the victims of changing climate and changing science over which they have little control. And I sympathize because I fear they are subject to manipulation by politicians who often take a short run view.
Government programs that displace the private market over a long perod of time — such as TWIA — have a tendency to be very hard to get rid of. Exhibit A might be the hearing this week. That’s because people come to rely on them. So, when TWIA has rates well below what a market would charge, and it has them over long periods of time, it encourages development on the coast. It encourages people to build businesses and houses, and larger businesses on the coast. They do so because they believe that the government program will continue — or because they just focus, as many of us do all the time, on the short run. The result, however, is that we now have more property than a market would create facing a large risk of loss. And that market is filled with nice people and nice children and worthy small businesses and important big businesses and schools. We have hopes and dreams struggling to succeed in the community that government helped create.
And then what happens? Precisely because the government is selling cheap insurance, the private industry won’t compete. The physical and intellectual infrastructure to sell private insurance on the coast decays. Sure, maybe there are other reasons, but you need to do a lot of work on me to persuade me that insurers are colluding — for no apparent reason — in just refusing to write insurance on the coast. Maybe one or two irrational insurers has an undue fear of writing risk on the coast. But insurers compete all the time on what constitutes good business. And reinsurers seem remarkably able to do business on the coast in a market where the price is unregulated. Surely, if TWIA weren’t in the way for years selling insurance at rates that could not be actuarially justified and that relied on other insurers and government picking up the ultimate tab, or if insurers hadn’t been fearful of the Texas Department of Insurance, which lives in a political universe, vetoing actuarially realistic rates that take time and money to develop, a large chunk of private insurers would be on the coast. Government thus converts what might have been the temporary evacuation of scared insurers from the Texas coast following Hurricane Celia into a permanent exodus.
And then it gets worse. We have global warming and climate science and Katrina and cheap computer modeling so that it’s now believed that the hurricane risk on the coast is far greater than that which history alone would reveal. So, now we’ve trapped people. We’ve erected communities and predicated lives on premises that no longer seem to hold. The insurance industry, if it was ever coming back, is more scared than ever.
None of this was the fault of the people on the coast. They couldn’t have forecast that people would no longer believe that historic evidence on hurricane frequency and severity would no longer be believed fully applicable. So, when people who are paying for an ever greater subsidy start saying, “party’s over,” I sympathize very much with their situation.
Laws and government can not run on sympathy alone. And the truth is if we don’t have serious reforms, the problems are only going to get worse. It is going to resemble exactly what Commissioner Kitzman described this past week as “rearranging the deck chairs on the Titanic.” So, what I’m afraid of is that after I smile and smile and express my personal sympathies,” I’m going to advance policy positions that people on the coast, many of whom have been misled for decades, still aren’t going to like.
In a future blog entry, I’ll continue to set forth my recipe for progress. It starts, however, with honesty. The good people on the coast have to acknowledge that, however faultless they may be, there are issues with asking other people to pay for their insurance needs. The people on the coast have to acknowledge that, although their choices may be constrained and difficult, they, like all of us, make choices about where and how to invest. The people on the coast have to acknowledge the inconvenient truth that the best climate models and damage models predict far greater risk than those in the past, even in areas of Texas that haven’t suffered a serious hit for a while. And the people on the coast have to acknowledge that continued subsidization and continued allocation of scarce resources on that basis can only make the problem worse. Personal attacks, as have been made, on people who tell the truth as they see it doesn’t help the process. In return, I’ll acknowledge a desire to limit the pain in a transition to a fairer, more efficient and sustainable approach.