Real estate is the most valuable asset most people will ever possess, and insuring against natural disasters like floods and storms is common sense.
Or so you might think. Two government-mandated programs are in financial straits, with critics asking if they should exist at all.
The Texas Windstorm Insurance Association is still kicking the financial can down the road to avoid raising rates because coastal property owners do not want to pay their fair share. Meanwhile, San Antonio-area homeowners are allowing their federal flood insurance to lapse as memories of past floods fade.
When disaster strikes—and we know it will—taxpayers will be left picking up the tab for others’ foolish decisions.
TOMLINSON’S TAKE: Unscrupulous developers will strike back against flood measures
The windstorm association, a quasi-government entity known as TWIA (TWEE-ah), provides coverage to more than 190,000 properties in 15 coastal counties that no private company will insure. That includes 57,433 properties in Galveston, 36,691 in Nueces, 29,524 in Brazoria and 24,311 in Jefferson.
TWIA requires property insurers to contribute to the association to lower the costs for high-risk property owners. But the Legislature also requires the owners to pay their fair share, and lately, they have been getting a considerable discount.
Hurricane Harvey and other storms have drained TWIA’s cash reserves, and the growing severity of hurricanes means premiums need to go up. In December, TWIA’s actuaries determined that TWIA needed to raise premiums 44 percent on residences and 49 percent on businesses.
TWIA’s staff recommended the board begin by raising rates just 5 percent to put the insurer on the path to solvency. But property owners reacted as if TWIA planned to evacuate the Texas coast permanently.
State Rep. Todd Hunter led an angry crowd into the Dec. 10 board meeting in Corpus Christi. They demanded an independent assessment of the adequacy of the current premiums, and the board agreed.
Guess what? Independent actuary Willis Towers Watson ran the numbers and last month announced that TWIA needs a 32 percent increase on residential premiums and a 42 percent increase on business properties.
TWIA’s board is legally obligated to charge an appropriate premium, but the board remains under enormous political pressure. Last month, it did what politicized boards frequently do and sent TWIA staff and Willis Towers Watson to get even more information.
Meanwhile, disgraced Texas House Speaker Dennis Bonnen of Angleton put Hunter on the Legislature’s TWIA Funding Structure Oversight Board. Hunter has promised to do everything possible to keep the board from raising premiums.
This is a clear case of regulatory capture. TWIA’s board is supposed to keep the insurer solvent, but the only people who show up to meetings are people who refuse to pay their fair share. Hunter is in a position to make sure rates don’t rise.
When a big storm hits the coast, TWIA will go bankrupt, and our tax dollars will end up bailing out people who choose to live in harm’s way. Stupidly, we will probably allow them to rebuild in place and start the whole cycle over again.
In addition to the wind, hundreds of thousands of properties across the state are at risk from flooding, something regular property insurance does not cover. The federal government provides subsidized insurance for these properties through the National Flood Insurance Program.
And like TWIA, federal flood insurance is in financial trouble. The program is $20.5 billion in debt, and it pays out $1.4 billion more a year than it takes in. Congress needs to double premiums to keep it afloat.
TOMLINSON’S TAKE: Get Texas government out of wind storm insurance business
Harris and Bexar counties have among the nation’s highest number of annual flood insurance claims, according to an analysis done at the Wharton School of Business. The Houston area was built in a geological bathtub, and the San Antonio region suffers from dramatic flash floods.
Too many people, though, are not buying flood insurance. In Bexar County, enrollment is down 13 percent over the last two years, the Texas Department of Insurance reports. The number of policies has also dropped in neighboring counties.
There are two major problems. First, people should not build in unsafe areas where private insurers fear to tread. Secondly, people who rely on government-subsidized insurance should pay their fair share rather than bully politicians for handouts.
Homeowners in these high-risk areas tout their contributions to the economy and property rights in defending their reliance on taxpayer largesse. But fairness dictates that premiums be based on risk.
At a time when so many do not have health insurance, subsidizing people living along scenic but dangerous coastlines and rivers strikes me as not only financially foolish but also heartlessly immoral.
Tomlinson writes commentary about business, economics and policy.
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