The destructive power of legislative fantasies

While fantasies may have their place in literature or otherwise, they are an unhealthy basis on which to premise legislative hearings. By distracting legislators from the real work that needs to be done before the end of session and providing false hope to constituents who need to take real action before the start of hurricane season, they are at least as destructive as any hurricane. That’s why the Corpus Christi Caller’s account this morning of yesterday’s meeting of the Texas Senate Committee on Business and Commerce should profoundly disturb residents of the Texas coast who depend on a viable windstorm insurance system. It should equally disturb those throughout the State of Texas whose fates are intertwined with their coastal friends. The meeting unfortunately perpetuates the absurdities of the meeting of the Texas Windstorm Insurance Association board that took place on Monday in which false villains were created and the very legislators who voted for the scheme that contributes to the current deplorable state of coastal windstorm insurance attempt through distraction to escape accountability.

Let’s identify the distracting fantasies.

Fantasy 1. TWIA can escape insolvency by assessing Texas insurers in 2013 for Hurricane Ike.

We’ve been through this before on this blog but let’s do it again now that we have an idea of the opposing arguments. The statute authorizing TWIA to assess insurers under former section 2210.058 of the insurance code was repealed in 2009 by section 44(2) of HB 4409. I’ll reprint that statute at the bottom of this post so you can see for yourself. Government can’t just take people or business’ property for the purpose of enriching others, no matter how worthy the cause, based on a repealed statute.  That’s called tyranny, and it is a violation of, among other things, the same Fifth Amendment protections that prevents the state from taking your house away to pay for worthy state expenditures and the same section 17 of the Bill of Rights contained in the Texas Constitution in which our state’s belief in those same principles is enshrined.

Until Monday, I had not heard a single argument opposed to the proposition that section 2210.058 no longer justified assessments against insurers. And, until I heard the contrary arguments, I was not prepared to say with 100 percent certainty that I was correct. But in light of a letter from several state representatives submitted to the TWIA board and made public Monday and in light of Representative Eiland’s reported comments at the hearing yesterday, we now appear to know the arguments of those who would contradict this apparently evident proposition. All I can say is, “that’s your best shot?” Here’s what they are apparently saying. If there are other arguments that I am missing, bring them on.

Argument 1: The potential to assess insurers is an “obligation, or liability previously acquired, accrued, accorded, or incurred under [a repealed statute] and is thus saved from repeal by section 311.031 of the Texas Government Code.” This argument misunderstands the nature of an obligation and a liability. An obligation or liability refers to something already existing.  Thus, if State Farm did not pay an assessment already imposed prior to the repeal, HB 4409 did not eliminate the already existing powers to force State Farm to pay. But at the time when the repeal took effect, there was no “obligation,” there was no “liability” to pay an assessment based on Hurricane Ike beyond the $430 million the TWIA board did assess in 2008. The fact that TWIA might have made an assessment is no more an “obligation” or a “liability” than a tax that the legislature might have but did not impose or a penalty that a court might have but did not impose.

Argument 2: There is some sort of contractual right on the part of 2008 policyholders to an assessment. I teach contracts and I like creative arguments.  But there is no such contractual right.  I’ve looked at TWIA contracts and there is absolutely nothing in those contracts creating a right to an assessment. Zero. Would a Texas legislator please show the public a TWIA contract containing a right to an assessment.

It is particularly galling, I might add, to contend, as Representative Eiland apparently did at the hearing yesterday, that TWIA policyholders deserve such a right (even if they don’t actually have one?) because of the premium they paid. In fact, precisely because of actions by legislators such as Craig Eiland,TWIA policyholders were not asked to pay a premium that would permit their insurer to be capitalized adequately and that might have provided better protection against hurricanes such as Ike. Instead, those legislators forced TWIA policyholders to become dependent on the TWIA board — a politically constituted body significantly chosen from the insurance industry — exercising their discretion to assess Texas insurers adequately in the event of a major storm.

Now, it may (or may not) be that the TWIA board breached some sort of duty to policyholders by failing to assess. A letter sent by coastal legislators earlier this week contains a disturbing account of board inaction. Unfortunately, however, the choice not to include a right to an assessment in the contract takes the matter out of contract claims against TWIA itself and put it into the murky area of fiduciary duty claims against TWIA board members. And, with fiduciary duty rather than contract providing the source of rights, the remedies become far more limited. Yes, you can sue a board member for breach of fiduciary duty, but section 2210.106 of the Insurance Code promised those board members immunity from suit unless one can show bad faith, intentional misconduct, or gross negligence.  And even if you get over this qualified immunity hurdle, I doubt there are too many board members who have $400 million lying around, the additional amount that TWIA officials recommended be assessed to pay for Ike.

Fantasy 2. Going into receivership would make it harder for TWIA to borrow money either before a hurricane or after a hurricane.

A lot of people at the TWIA board meeting Monday testified about the terrible problems that would be created if TWIA were thrown into receivership: sending the wrong signals, threatening continued development, threatening mortgage covenants, and threatening  the Texas economy (even national security) by challenging energy production on the Eagle Ford Shale. Unfortunately, these people have confused treatment with either symptoms or disease.  It is fine to be angry about cancer, but anger at being treated for cancer after a positive test comes back is misplaced indeed. And it’s insolvency here that is causing the problems and that is going to cause more problems. Receivership is a treatment for the disease of insolvency (here a disease caused by a combination of legislative dysfunction, human greed and fallibility, and a Category 2 hurricane that hit in a particularly vulnerable spot). In fact, although perhaps the matter could be deferred for a week or two to get plans in order, receivership makes a lot of sense. It would likely, as Representative Taylor appears to recognize, actually help most TWIA policyholders.

Here’s why.

Reason 1: Without receivership, there will be even less money available to pay claims for any hurricanes that hit this season. TWIA is being picked apart by claims for Hurricane Ike that are still pending.  Projections are that, even if no serious hurricane hits, TWIA will have even less money by the time the year ends. Thus, if Tropical Storm Barry or Hurricane Rebekah hits this season, there is going to be even less money around to pay the new claimants.  This is particularly true, if, as many fear, the recapitalization structure envisioned by the current Texas Insurance Code, is not going to work and if one of the bills pending in the legislature continues not to address issues for 2013. Those whose houses are decimated this summer by a storm are very much going to wish that someone through TWIA into receivership this spring so that 2008 policyholders and 2013 policyholders were treated more equally. So equity among TWIA claimants is one good reason for a receivership.

Reason 2: The recapitalization structure envisioned by the current Insurance Code may well  be more likely to work with a receivership than without one. Someone who lends money to TWIA now has to be concerned that their claims will be paid out of the same pot as Ike claimants or other TWIA creditors. Given TWIA’s insolvency, that is worrying. It’s likely to cause lenders to demand a particularly high rate of interest if they are willing to lend at all.  Although I am not certain of this, if Texas receivership is like federal bankruptcy, post-receivership financing even in a rehabilitation case can be separated out and given a higher priority that other claims.  That appears to be true in Texas insurance liquidation (section 443.154(j)) and I would be surprised if it were not true in a rehabilitation as well. Now, if the rehabilitation failed, such a refinancing might hurt existing (Ike) claimants of TWIA, and one can see how they might oppose a cavalier refinance on that basis, but if one wants to give TWIA some hope or making it through another hurricane season, giving new lenders some additional protection makes a lot of sense.  I don’t see how that can be done absent a receivership.

Reason 3: The parade of horribles brought forth by representatives of the coast at the hearing Monday was mostly about the problems created by insolvency, not by receivership.  Mortgage companies who have imposed covenants to maintain insurance on their borrowers don’t care as much about whether the insurer is in receivership as whether that insurer has enough money to pay claims that threaten their collateral. And, yes, workers in the Eagle Ford Shale and elsewhere will be hurt if their windstorm insurance premiums go up and their corporate employers don’t respond with higher wages, but what happens to premiums is not particularly dependent on a receivership.  It is dependent on an understanding of why TWIA went insolvent and the proposals pending in Austin to reform TWIA.

At best, the argument against receivership is thatTWIA, a so-called “residual market” carrier, was not really “insolvent” in the same way a private insurer would be if its liabilities exceeded its assets. That’s because, this point proceeds, TWIA has a statutory right to recapitalize through assessment and surcharge that other insurers do not following a major disaster.  So, it is true that, at least for a while TWIA will be able to pay its bills. But inability to pay bills is not and should not be the only basis to justify a receivership.  Another reason is equal treatment of claimants.  The recapitalization mechanism was never very solid and is now so dubious that there is a serious question whether TWIA can treat current policyholders fairly.

Fantasy 3: Resolutions of the receivership issue and assessment issue are very important.

Receivership is an issue, but it is not the main issue. It will just determine at the margin how current and future TWIA claimants get paid and may have some effect on solvency this summer.  Even an assessment of another $400 million or $500 million to fully pay for Ike, though it would help current TWIA claimants, will do little to fix the most fundamental problems with that entity, which include its perpetual undercapitalization and the instability and unfairness of its funding mechanisms. Even with an assessment and with or without a receivership, the current law means that TWIA is running a very substantial risk of going insolvent this year from another serious storm. Or, in plain English, if you own property on the coast and it is hit by a tropical cyclone this summer, there is a troubling chance TWIA will not actually be able to pay what it owes you and you may have trouble rebuilding.

The main issue is how to address windstorm insurance on the coast both for the coming hurricane season and thereafter. There are two serious proposals before the legislature. One basically proposes depopulating TWIA and moving toward a market-based system backstopped by an assigned risk plan for those areas in which the market fails to provide insurance close to some affordability threshhold. Under this system, although people across Texas very definitely help, coastal policyholders bare most the burden of the risk posed to their property. Coastal propertyholders get the benefits of owning real estate near the Texas coast, but they also pay for it. The second proposal continues to force people — poor people and rich people alike, Amarillo residents, El Paso residents and Nacogdoches residents — to subsidize risk along the coast even more than has been done before. While this system at least reduces the risk of a hurricane leaving insureds with claims only against an insolvent insurer, it sends bad signals to the development market and, gallingly, frequently transfers money from the poor to the wealthy. I have my own views on how that debate should come out but respect the view of others.  I just wish it was that debate that was preoccupying the Texas legislature and not a judicial remedy for addressing the existing insolvency.

Here’s what Representative Craig Eiland reportedly said yesterday:

“I see no way you could ever say that’s there no assessment authority with TWIA based on the contractual rights the 2008 policyholders have for the premium they paid for the coverage they purchased,” he said. “Why are we dancing around the question? If we go into receivership the judge is going to assess the companies and have an answer. Why are we not trying to have an answer? Before you make the decision that we cannot assess, how about go assess and find out the final answer.”

 

Text of section 44 of HB 4409 (found here)

 SECTION 44.  The following laws are repealed:
             (1)  Subdivisions (5) and (12), Section 2210.003,
Insurance Code;
             (2)  Sections 2210.058 and 2210.059, Insurance Code;
             (3)  Sections 2210.205 and 2210.206, Insurance Code;
             (4)  Sections 2210.356, 2210.360, and 2210.363,
Insurance Code; and
             (6)  Subchapter G, Chapter 2210, Insurance Code.

Smithee bill would require TWIA to tell policyholders the truth about its solvency

John Smithee photo

John Smithee

State Representative John Smithee (R-Amarillo) has filed a bill in the state legislature  (HB 2785) that would require the Texas Windstorm Insurance Association (TWIA) to tell its policyholders on the declarations page of any policy it sells after January 1, 2014, about the limited resources available to pay claims in the event of a serious storm. The bill requires disclosure of the financial resources of TWIA, including the state of its catastrophic reserve fund and the marketability of bonds on which TWIA currently relies to pay claims for even modest tropical cyclones.  Critically, it also requires a prominent warning to policyholders right on the declarations page of the policy that the state of Texas is not obligated to come to their or TWIA’s rescue in the event that TWIA can not pay.

Needless to say, Catrisk is enthusiastic about this bill for several reasons.  First, it will enable potential insureds along the Texas coast to make intelligent decisions about the extent to which they want to try to obtain non-TWIA policies to protect them in the event of a serious storm even if those policies are more expensive.  As it stands, some TWIA policyholders may suffer from the incorrect assumption that the resources available to pay claims from policies purchased from TWIA, which currently relies on a paltry catastrophe reserve fund and a shaky structure of post-event bonds, are the same as those available from regulated private insurers, who would be put out of business if their reserves were anything near the inadequacy of TWIA’s. The misinformation suppresses demand for policies from regulated insurers and thus contributes to the self-fulfilling prophesy that the regulated market “can not do business on the coast.” Other prospective insureds, by the way, may actually have an exaggerated sense of TWIA’s instability and thus decline to purchase TWIA policies due to excessive fear. The bill, by providing the relevant facts, could help both groups of people make an informed choice.

Second, those contemplating migration or business expansion on the Texas coast will now be advised to think about whether they want to choose between going with a less expensive but flimsy insurer (TWIA), scrounging for difficult-to-obtain and often expensive wind insurance from a private insurer, or deciding that there may be better places in which to invest. This, of course, is precisely why some coastal interests, particularly those who benefit from immediate investment on the coast, oppose bills such as HR 2785. Telling people the truth about a risky product is indeed likely to drive down demand for the risky product while stimulating demand for the safer.  But getting demand for insurance products back to fair market levels, as opposed to levels inflated by subsidization and misinformation, is a good thing for Texas as a whole. Market distortion is not a zero sum game.

Third, this bill is a good idea regardless of the form in which TWIA goes forward.  Whether TWIA is transitioned out for residential policies, as proposed in the recent Carona bill, or strengthened through significant subsidies, as in the recent Hinojosa and Hunter bills, many policyholders are likely to remain in TWIA or potentially in TWIA for several years to come.  In that interim period, those policyholders should be warned of the remaining dangers posed during the transition to a system of greater solvency.  The faster and more forcefully that transition occurs, the less dire the warnings will need to be.  I am confident that Representative Smithee would be glad to include an amendment to his bill exempting TWIA from the disclosure requirements if it could show the Texas Insurance Commissioner that it would satisfy solvency requirements imposed on other Texas insurers.

At least one coastal legislator, Todd Hunter of Corpus Christi, has voiced opposition to the Smithee bill.  He did so at a hearing last year (go to go to 1:57:50 to 2:02:18 of the recording) in cross examining me about ideas similar to those found in the Smithee bill.  And he is reported today in a Corpus Christi Caller article as asking, “Why should coastal residents be the only people subject to this Miranda warning from (the association)?” Hunter asked. “Why is it not required, statewide, for all carriers?”

The rejoinder to Representative Hunter’s opposition, however, is that other Texas carriers are subject to financial solvency regulations from which TWIA is exempt and as to which TWIA would be in serious violation were it ever required to follow them. The reason TWIA policies should be stamped with bold red warning labels is the same reason that we stamp surplus lines policies in Texas with similar warnings: they are not subject to the same regulatory structure that works pretty darned well in preventing insurer insolvencies. Coastal residents are mature enough to handle the truth. Just because TWIA and State Farm both have the word “insurance” in their names does not mean that the law should treat them the same.  We don’t exempt investments in junk bonds from disclosure regulations about the risks involved just because some other forms of “investment”, such as certificates of deposit in a federally insured bank,  are not subject to as strict disclosure rules.  And, again, if equality of treatment is really the objection of some coastal legislators, an amendment exempting TWIA from disclosure in the event its financial condition would satisfy otherwise applicable solvency regulations seems a better answer than keeping TWIA policyholders in the dark under the fiction of “equal treatment.”

Note 1. The Smithee bill closely follows Recommendation #10 posted on this blog on September 10, 2012.  In “Ten fixes for TWIA: What I’m planning to say in Austin this week” I wrote as follows.

10. Require prominent disclosure to TWIA policyholders created by the financing structure in place (as modified by the reforms suggested here or otherwise enacted). This disclosure should, at a minimum, advise policyholders of the approximate probability, computed using the best historical data and contemporary models, of the risk that TWIA will become insolvent, will be impelled to increase premiums to pay off Class 1 securities and will be impelled to impose surcharges to pay off Class 2 securities. Disclosure should be made (a) on a document signed by applicants for TWIA policies (new or renewal); (b) stamped (similar to surplus lines stamping) on policies issued by TWIA; and (c) on a web site one or fewer clicks from the main TWIA page.

 

Note 2. The bill also echoes thoughts expressed in this blog here:

Policyholders don’t need to be scared about every unlikely event, but they have a right as adults to know of a substantial risk.  Losing your house and facing an insolvent insurer qualifies. We warn holders of surplus lines policies of lesser protections against insurer insolvency with a great big stamp on the policy.  Why not the same for an equally unguaranteed and often far riskier insurer. And while we’re warning, let’s also warn them of the potential for post-event Class 1 assessments, for which the risk is yet far higher and uniform throughout the TWIA territory.

Note 3. Although I suspect many insurance agents will not immediately embrace the Smithee bill, enlightened ones should do so.  This is because the bill should provide some protection to insurance agents who now find themselves in a difficult position.  Right now, insurance agents who don’t warn their policyholders of TWIA risks may be setting themselves up for a lawsuit.  The dangers of TWIA are so palpable that a plausible claim of negligence or intentional non-disclosure is definitely something these agents need to be concerned about in the event TWIA either can not play claims or is highly delayed in paying claims.  It is wishful thinking and ostrich-like behavior to pretend this serious risk does not exist. On the other hand, insurance agents who do warn their policyholders of TWIA risks may find business going elsewhere. The bill probably saves agents the dilemma of whether or not to tell the truth by leaving disclosure to the policy itself.

 

 

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.

I hope taxpayer money is not being used to fund a private group’s lobbying

Today’s Corpus Christi Caller has an interesting article detailing the efforts of the private Coastal Windstorm Task Force to obtain $30,000 from the city of Corpus Christi to fund an actuarial review of their proposal to revise funding for the Texas Windstorm Insurance Association.  I have mixed feelings about this.  On the one hand, I applaud the efforts to the Task Force to get an actuarial review of their proposal.  I’ve done an analysis already (without special compensation) but there is surely room for company. And although perhaps the analysis should have been done before or at least at the same time as the proposal was released, better late than never. Moreover, If the City of Corpus Christi itself wants to commission an independent actuarial study that examines a variety of reforms of TWIA and that process is subject to regular administrative processes that protect the public, such as Open Records laws, fine.  Getting more actuarial science involved in this debate would be very healthy.

On the other hand, I have great concerns if taxpayer money were to be used to help a private entity lobby Austin.  I don’t know whether it is lawful for city or county government to pay for a private entity to have research done for it. I also do not know whether it is lawful for city or county government, as apparently been done, to pay the travel expenses of a private group so that it may lobby (see note below). Lawful or not, however, it is surely is not a great idea.  There may, for example, be residents of Corpus Christi who do not support the Coastal Task Force plan or the aims of its chamber of commerce.  Why should government taxing authority be used to coerce these people into paying for other people’s research and speech? Moreover, if it is the Chamber of Commerce or the Coastal Task Force that commissions the study, what controls will there be on the communications between the Task Force and its hired actuary?  What if the actuary comes back with an analysis that the Task Force does not like?  Will the Task Force be able to prevent release of that information or to massage it through processes that independent examiners (such as journalists or other Texas citizens) can not see?

I respect the right of a city to pay to have important legislation studied.  But that research needs to be conducted through a transparent process with actuaries insulated from political pressure.  It should not be insulated from public scrutiny or subject to inappropriate steering by paying a private group — one not without its own resources — to do the study for it.

 

Note:  The Caller article states: “[Corpus Christi Chamber of Commerce President and CEO Foster] Edwards said other coastal communities have committed funds to help the task force that has incurred thousands of dollars in costs traveling to meetings throughout South Texas and as far away as Dallas.”

Corpus Christi Caller details TWIA solvency problems

There’s a worthwhile article in the Corpus Christi Caller written by Rick Spruill. It addresses both the serious funding problem faced by TWIA today and the solutions being developed by coastal legislators and some coastal interest groups.  The article relies extensively from some of the blog entries here at http://catrisk.net, including ones here and here.

I’ve sent an e-mail to Mr. Spruill on the article and want to post that email here.

I agree that this (http://m.caller.com/news/2012/dec/26/texas-windstorm-insurance-association-could-face/) is an intelligent and important article.  Moreover, even though it contains some criticism of what I have said on http://catrisk.net, it is a balanced presentation.  Two comments, neither of which reflect negatively on Mr. Spruill’s article:

1)  I don’t think Todd Hunter’s comment that Chandler “wants TWIA policyholders to pay for everything ” is quite right.  I want TWIA policyholders to pay for a much larger proportion of the losses their insurer is likely to pay and for that coverage to either be real (i.e. backed up by viable financial structures) or for very clear warnings given by TWIA and TDI to policyholders about the probabilities and consequences of TWIA insolvency.  Although in concept I agree that TWIA policyholders should pay for TWIA risks — I understand that there will be a period of transition required. But the direction of the transition should be towards the assumption of responsibility, not towards shirking it.  I would not be averse, for example, to some sort of grants or subsidized credit being made available, for example, for hardening coastal properties (“mitigation”) and would much rather see money from people other than TWIA policyholders going to reduce the scope of the risk rather than used to bail them out after a fairly foreseeable disaster occurs. I agree that our Texas economy is all interconnected and that if the coast were to suffer a hurricane in which a substantial number of policyholders had large claims against an insolvent insurer, it would hardly be only the coast that suffered.

2) The article is correct  that my computations do not take account of the double dip that TWIA policyholders with automobiles (and non-wind policies) would incur. I don’t have the data that would permit quantification of this complication in part because the Zahn Coastal Taskforce plan is not explicit enough about what sort of insurance would be subject to surcharge. I wish I did have the data. If anyone (like TDI) does have relevant data and would share it, I’d be happy to revise my conclusions.  And I will add a caveat to the existing posts reflecting this matter.  I do not think, however, that inclusion of this complication will alter the fundamental conclusions of my analysis.

Best wishes to all for a happy, healthy and hopefully hurricane-free New Year.

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.