Fox 26 Understands the Issue, the Houston Chronicle does not

Fox 26 in Houston will be airing a story tonight on the problems that will result from failure to develop (thus far) a sensible bill reforming TWIA that has broad political support. I’ll be in it. The story is particularly timely in that today’s failure of the legislature to address the only bill to emerge from a committee on the subject, S.B. 1700, is further evidence that time is running out.

And, might this be the time to criticize the Houston Chronicle and make yet more people annoyed with me? Perhaps so.  You can believe me on this issue, you can believe coastal legislators, or you can believe whom you want about the merits of various reform efforts,  but everyone who has bothered to look understands that the financial troubles — some would call it insolvency —  of the largest insurer on the Texas coast — right as hurricane season begins — is a pretty major issue. It affects tens of thousands of people in the Chronicle’s circulation area as well as hundreds of businesses and government bodies along the coast.  And, if what I am saying is right — which might just possibly be the case — the insolvency of TWIA following a significant storm this summer is going to affect every single person in Harris and surrounding counties. Indeed, on this issue, I suspect, some legislators who don’t like my reform ideas very much would probably agree.

And what coverage has the Houston Chronicle offered on this issue?  Nada.  Zilch. Less than the Corpus Christi Caller with its far more limited resources.  Less than even the Galveston Daily News. I know newspapers are really struggling right now and actually covering political news is a challenge, but I look at the Chron.com website right now and I see fascinating reports of a Fort Bend teenager bagging a large alligator, a story on the failure of an excellent restaurant to open in the Heights, and some local crime stories, but nothing on this issue.  And it’s not just this way today.  There has been silence from the Chronicle for the whole legislative session.  If a local TV station can cover this story competently, so too can Houston’s major daily.

P.S. For newer readers of this blog, please do not take my difficulties with the failure of the Senate to take up S.B. 1700 as support for that bill.  For reasons discussed elsewhere, I have serious problems with the bill.  My point is that the status quo is a disaster waiting to happen. A seriously amended S.B. 1700 could become the framework for a two-year patch up of TWIA. But if things don’t happen really soon, there will be no opportunity to get a bill through both houses of the Texas legislature, let alone one that could be in place before September 1, 2013.

Fox 26 Stays on the Story

Greg Groogan of Fox 26

Greg Groogan of Fox 26

Fox 26 Houston news with its reporter Greg Groogan has run another story on the problems facing the Texas Windstorm Insurance Association (TWIA).  I’m quoted again in this story (accurately, just like last time).  The story very well encapsulates the problem. TWIA does not have enough money to pay claims. Coastal residents don’t want their economy hurt by paying higher insurance premiums. And Texas taxpayers and property owners not on the coast don’t want to continue to pay wind and fire premiums not just on their own house but also help subsidize wind premiums on the homes of coastal residents, many of which are more expensive than theirs.  As a result, most involved are in one of the Kubler-Ross stages of grief: (1) denial, (2) anger; (3) bargaining; (4) depression; or, possibly (5) acceptance. And I agree with the realtor quoted in the story: as it stands Texas catastrophic risk system is pretty much prayer based.

P.S. Houston Chronicle: anybody home?

Unfortunately for Texas, the Fox 26 story quoted me correctly

I received an email Friday afternoon from an insurance agent.  It concerned the recent story on Fox 26 Houston TV in which I appeared.  Here’s what the letter said:

I believe  the  reporter in this publication has misquoted you or misunderstood what he was told.   It has been my understanding as a professional  agent for many years, and  also that of my associates,  that should TWIA become insolvent that insurance companies doing business in Texas will be assessed for millions of  dollars and  losses that then exceed those sums will be paid from the General Funds of the State of  Texas.  To rely on such a system is totally unacceptable—the delays in claim payments to policy holders would be unacceptable.  However, the statement that the State has no obligation to pay those claims remaining after the assessment is totally false.
If I am misinformed, please let me know the error of my ways.  I am correct, please ask  the reporter to print a correction.   If I am correct,  this misstatement is not only confusing but can do irreparable damage in further confusing the buying public.   The matter is already complicated enough .
I read the email while I was walking the dog. And, for a moment, I was unhappy.  It was, after all, being suggested that I had misled the public in a way that could do irreparable damage.  Falsely asserting an insurer is in deep trouble can create runs.  If publicized widely and treated as credible, such assertions become somewhat of a self-fulfilling prophesy.  Plus, the email author was incorrect in his understanding of how TWIA has worked since at least 2009. That probably meant that a large segment of the public — and even the insurance public — were not up to date on what has been going on in Texas for the past five years. Depressing. But, on reflection and return from my canine adventure, I recognized that this meant that the Fox 26 story by reporter Greg Groogan had an impact and that I had an opportunity here to do some targeted education.
Here’s what I wrote back.

Thanks for your interest in this topic and your taking the time to send me a polite email. I was walking the dog when I received your email so I just tapped out a brief reply.  I would be delighted to speak with you by phone at your convenience. You can reach me on my cell at xxx-xxx-xxxx. The short version, however, is that the Fox 26 reporter basically got it right and, unfortunately, I can not claim to have been misquoted.   I would be happy to  explain this to you in more detail. To get you started, you might want to look at any of the following:

David Crump, another Texas citizen interested in these issues, and an insurance agent also sent my emailer a polite and helpful response.

Later Friday night I received a reply from the insurance agent. Here’s what he said.

Dr Chandler, thank you for all the information you have provided.  I am embarrassed that my understanding is so outdated.  Armed with this information I am at least better equipped to explain to our clients the problems they face when the next hurricane comes.  We can only hope and pray that our Texas legislators find the wisdom and political courage to do whatever is necessary to resolve this issue–and do so in time.  At the moment it is difficult to place adequate coverage for our clients, but that is better than the impossibility that it may become without a resolution.

Again my sincere thanks for taking the time to correct my misinformed understanding.

I then felt really good.  First, a civil exchange between two people who might initially have been taking adverse positions had ended in some agreement.  Second, I’d educated someone who sells insurance to the public. That agent and his colleagues are now in a position to give the public better guidance in their choices.  And third, I recognized that I’d actually covered a lot of ground in this blog and that it was a very useful source of information and education.  The only sad part was that what the agent wrote back was precisely correct: “We can only hope and pray that our Texas legislators find the wisdom and political courage to do whatever is necessary to resolve this issue–and do so in time.  At the moment it is difficult to place adequate coverage for our clients, but that is better than the impossibility that it may become without a resolution.”

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.