In Texas, windstorm insurance is a political hot potato. Homeowners in the state's coastal counties can't buy coverage from commercial carriers, who have all left the high-risk area. So locals on the coast need to buy required insurance from the Texas Windstorm Insurance Association (TWIA), the state's so-called "insurer of last resort." But TWIA is deep in the hole from financial obligations incurred after the disaster of Hurricane Ike in 2008, which slammed the state with $19 billion dollars in damage.
If another Category 4 or 5 storm — or multiple storms — hit Texas while TWIA is already under strain, the association could go under. So TWIA is looking for a strategy to shore up its defenses. The latest gambit, which is allowed under current law and regulations is to plan for a surcharge on auto policies that would take effect if TWIA needed to issue bonds in the event of a storm that overwhelmed the association's alarmingly thin cash reserves.
The Brownsville Herald is reporting on the proposal, and the controversy surrounding it (see: "County residents may face auto insurance surcharge," by Steve Clark). Writes the Herald: "At the center of the debate over who should pay for claims that exceed TWIA's reserves is whether the burden should be shared among all Texas residents or borne exclusively by residents of the state's 14 coastal counties. Despite arguments by state Rep. Todd Hunter, Rep. Eddie Lucio and others, the latter approach appears to have the most traction."
"The surcharges would repay if the Texas Windstorm Insurance Association needs to go out and get a Level 2 Bond, which is only needed after hurricane claims top about $1.5 or $2 billion," Corpus Christi TV station KRIS-TV reports (see: "As Insurance Rate Hike Looms, Commissioner Gets Earful"). "And then, the surcharge would only apply in the designated catastrophe zone. But if it does strike, and Corpus Christi is on the hook, the surcharge could mean hundreds a year for some households. And people won't know how much the surcharge will be or for how long it will last until after the storm strikes, not before."
"Those who think the burden should be shared by everyone argue that the coast is a big economic generator for the whole state (think Houston), and that it's only fair considering coastal residents share the risk of insuring damage from natural disasters elsewhere in Texas," notes the Herald. Said Corpus Christi State Representative Todd Hunter: "We've had brush fires, grass fires, we've had tornadoes. We've had hail. You've never heard a coastal resident say 'Tax those people, we don't wanna carry our load.'"
The Texas legislature meets only every other year, and won't meet in 2014, the station notes — so if the insurance association adopts the proposed surcharge, coastal residents can't look for relief from lawmakers any time soon.