Fox 26 Houston Story on TWIA Tonight

Fox-26 Houston (KRIV) is doing a story for their 5 p.m. news today, April 25, 2013, on the problems facing the Texas Windstorm Insurance Association. I was interviewed in connection with the story. Although I spent much of the time engaging the special insurance mythology of the Texas coast, my hope is that this story brings attention to the immediate problems facing both coastal Texans and the rest of the state this summer.  I am very glad at least one Houston media outlet is covering this urgent issue. The legislature may well need some prodding in order to act before the current session expires in 32 days.

Here’s a link to the story.

Unfortunately, it looks like the reporter got an earful of the usual from some coastal residents before interviewing me.  He heard, for example, the myth of how the coast subsidizes the rest of Texas’ hailstorms and tornados so it’s only fair that the rest of Texas subsidizes coastal windstorms.  This is wrong in so many ways. First, Texas does not relieve Northern Texans from paying for the full cost of homeowner insurance by establishing a state-created insurer and saying that, when that insurer runs short, it can hit up people other than policyholders to pay claims and recapitalize the insurer. If and when Texas does this, I’m willing to listen with greater attentiveness to the “we are all in this together” song. For now, I regard it as a guise for geographic wealth redistribution that frequently hurts the poor. Second, while it is true that Texas insurers pay out over the long run a lot in hail and tornado claims, it’s also true that the denominator — the value of property insured along non-coastal Texas — is a lot bigger than the value of property insured along the coast.  So the risk of hail and tornados is not the same as the risk of tropical cyclones. It is less. Third, Texas insurers are permitted by the Insurance Code (544.003(b)) to price on the basis of geographic risk, provided they can establish it is real.  I am aware of no evidence indicating that Texas insurers have not taken advantage of that opportunity and have failed to charge northern Texans a fair risk for the special risks they pose by virtue of the somewhat higher risk of hail and tornados in those regions relative to coastal Texas.  I have never yet seen an actual relevant number from any proponent of the cross subsidization myth.

The reporter also heard the usual comments about how the coast is some exaggerated percentage of the Texas economy. If the only purpose of this remark is to urge legislators to find a good solution to the problems of catastrophe insurance along the Texas coast, I agree 100 per cent.  And the fact that they exaggerate the numbers a little bit might count as a white lie. Usually, however, these utterances with exaggerated percentages are instead justification for continued subsidization — a system, by the way, that has not worked out very well for the coast.

Of course the coast is important to the Texas economy.  No one I know is saying anything to the contrary.  And lest there be any doubt, I agree that the Texas coast is very important to the Texas economy. That’s just another reason that getting its property insurance market in good shape is all the more important.  But first of all to say that it is 40% or 50% of the Texas economy because 40 or 50% of business is indirectly tied to the coast is not the right measure.  Once we start using indirect ties, the total percentages are going to add to way more than 100%. I venture to say that 50% of the Texas economy is tied directly or indirectly to Dallas, and another 50% to Houston and another 40% to Austin and another 40% to San Antonio, and so forth.  But so what? The fact that we are all interdependent is simply not a logical argument that one part of that interdependent system should subsidize another. Probably 100% of the Texas economy is tied to Texas cities. Does that mean that rural folk should subsidize my urban homeowner insurance?

Here are the points I tried to make.  They will be familiar to readers of this blog. I have spoken with this reporter before on other insurance topics and he does a good and fair job whittling down longer comments to the limits of television news.  So, I hope some of them survive.

  • TWIA has just $180 million left in its Catastrophe Reserve Trust Fund. It was thought as recently as a few months ago that TWIA would have access to at least $3 billion with which to pay claims. The issue was whether $3 billion was too little.  But after looking at the financial environment and taking a close look at the TWIA finance law, including a possible bug, there is now serious doubt that there will be much more available to pay policyholders than the $180 million in the Catastrophe Reserve Fund.

  • The state is not legally obligated to pay claims if TWIA is insolvent.  If there is a large storm this summer, there is a serious risk that TWIA policyholders will get only pennies on the dollar.

    • What can TWIA policyholders do?

  • (1) Extreme vigilance in protecting their homes.  There are lots of mitigation steps that can be taken, particularly with older homes.  Some need to be taken right now.  Others can be taken if a storm approaches.  But act as if you have a huge copay on your policy

  • (2) Some TWIA policyholders may have alternatives.  It may be more expensive.  Consider whether you want to pay more but sleep better this summer

  • (3) Urge your legislators to treat this problem seriously.  32 days left in session.  Bills pending that address the issue. There is both a short run problem and a long run problem.



2 thoughts on “Fox 26 Houston Story on TWIA Tonight

  1. Seth – Two thumbs up. I particularly liked you logic on the coast mythology. You present it very well.

    As you know I am a “constructive pessimist”. I see disaster looming and try to find a way of avoiding it. My wife thinks I see to many problems and should only look for the happy stuff.

    Can anyone tell me that the current situation with TWIA is not an enormous disaster looming this year? Sometimes “the sky has fallen” and we are in deep trouble is the right assessment. I am very frighten and don’t see a clear path to avoid it since the political process is not, as far as I can tell, found any solution to handle this year’s hurricane risk.

  2. Pingback: Unfortunately for Texas, the Fox 26 story quoted me correctly

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