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Wind Pool decision tough for Insurance Commissioner

As the first named storm of the 2006 hurricane season sends storm warnings to coastal Florida, Mississippi is still recovering from the 2005 season — especially with Hurricane Katrina fresh in the minds and wallets of many people and businesses.

An after-effect of that storm is the damage and recovery costs needed to begin rebuilding with much of that cost being born by the insurance industry.

However, Mississippi Insurance Commissioner George Dale is between a rock and hard place when it comes to those costs as he ponders what to do with a requested 397.8% increase to the Mississippi Windstorm Underwriting Association.

The association, which provides coverage for high-risk homes in coastal Mississippi, presented the rate hike for residential properties insured for wind and hail damage, at a public hearing June 5 in Jackson. Rate hikes of 268% for commercial property and 60.4% for mobile homes were also requested.

Just from the Katrina storm, the state’s Wind Pool fund sustained about $603 million in losses, which was about one-third of the pool’s insured value. With only $175 million in reinsurance in the fund, insurance companies who write policies in the state were assessed the remainder of the costs.

Since state law doesn’t allow the Wind Pool fund to operate at a deficit, it will need another $350 million in reinsurance to cover losses, which is what is behind the requested massive rate increase to cover the $43-million cost, said Dale.

Already more than $700 million in claims have been filed with insurance companies in the state, “and all of that has been paid. We still have some being worked on, but the claims are, for the most part, paid,” said Dale.

The Mississippi Windstorm Underwriting Association was created by the Legislature after Hurricane Camille caused so much damage to the same general area of the Mississippi Gulf Coast. The association covers more than 15,000 residential and commercial customers in what is considered Mississippi’s six Gulf Coast counties — Hancock, Harrison, Jackson, Pearl River, George and Stone.

Insurance companies that write policies in the state — of which there are more than 500 certified to do so — are all assessed some increase to be paid into the Wind Pool fund.

However, that assessment is based on how much or how little a company actually writes in the Gulf Coast counties.
Dale said that companies that write the majority of policies on the Gulf Coast, would either have no increased assessment or very little “because of the number and volume of policies they write down there.”

At the hearing, Dale entertained comments and concerns from across the insurance spectrum with a decision on what to do expected within two to three weeks.

He said he has “received comments, e-mails, letters, phone calls all commenting on the situation.”

But one thing is for sure.

The requested 397.8% rate increase most likely won’t be approved, said Dale, although what he’s thinking as an alternative he declined to say.

He has 30 days from the June 5 hearing to make a decision.

‘No-win situation’

“It’s a no-win situation,” said Dale. “Something needs to be done and quickly, but the state and property owners can’t afford that kind of an increase. So I have to look at this very carefully and do what’s in the best interest of our people as well as the industry.”

Dale has hired an actuarial firm from Atlanta to help analyze and study the request, which should help to better determine what kind, if any, of an increase should be considered.

The requested rate increases will not be used to pay claims from past storms, since Katrina claims have mostly been paid for those that have filed, but instead will provide for additional reinsurance for the current hurricane season.

“I will do everything I can through my department to find ways to offset this cost because the Gulf Coast has been punished enough,” said Dale.”

At press time for this issue of the Mississippi Business Journal, Dale was keeping his options close to his chest by not indicating what kind of an increase, if any, he would approve.

“I’m caught in the middle, and that’s a position I don’t like,” he said.

Eyes on Dale’s decision

In a presentation by Dr. Robert P. Hartwig in March titled “Hurricane Season of 2005: Impacts on U.S. P/C Insurance Markets in 2006 & Beyond,” for the Insurance Information Institute, Hartwig said that rates for reinsurance purchased by insurance companies to help mitigate their losses from hurricanes have increased 30% to 150% over the past three years. This was a major underlying factor in the requested rate increase for the Wind Pool fund.

Insurance industry people both within and without the state are also keeping a very close eye on Dale’s decision. What he decides will have a major impact on what happens with insurance rates in the state, which may still be writing policies and how the industry will react in the event of another Katrina-like event.

“It’s a no-win situation,” said Ronnie Tubertini, president of SouthGroup Insurance and Financial Services of Jackson. “From the perspective of our agency, where we have branches throughout the state and all through the Pine Belt, that area was hit so hard by wind.”

“We have very little down on the Gulf Coast. We had nearly 4,000 claims all from wind. Fortunately for our agency the majority of our claims were not in the lower tier counties,” he said.

“So most of ours were wind claims, and because we are not in the coastal counties, were paid directly by the insurance companies. We do business with the Wind Pool for the risks that we do write in the coastal counties,” said Tubertini.

Because Mississippi is “a small state” when it comes to writing insurance, “you’ve got to have enough policy written over time with the premiums to cover the losses from something like a Hurricane Katrina. However, everyone is assessing company positions right now. We’re taking a wait and see position to see what Commissioner Dale is going to do,” he said.

“Less than 1% of the premiums written in the country is written in Mississippi, so we have to be careful how we address this issue,” said Tubertini. “We have to maintain a competitive insurance market in the state, and from my perspective, I want to represent as many insurance companies as I can so that I can have a competitive choice for my customers. Everyone is in business to make a profit. So if the state makes a wrong decision, it could seriously affect that competitiveness.”

“We write policies in the six coastal counties, and without the Wind Pool, it would be extremely difficult, if not impossible, to provide this coverage,” said Charles F. Porter, president of Barksdale Bonding and Insurance Inc. in Jackson.

“The rate currently is depressed and the increase should be an actuarial process rather than political. What the pool pays for reinsurance today will be significantly higher in coming years because the potential new development on the coast will only increase the total insured value,” he said.

‘It’s going to affect everyone’

From another perspective, Charles McLean, president of Shackleford Brothers & Fortenberry Inc. of Canton, said, “What the people of Mississippi need to understand is that the Wind Pool fund doesn’t run a surplus. With storms like Katrina, they’re not going to have enough money.”

“Regardless of where you live in Mississippi, you’re going to ultimately be paying for what happens down there through higher premiums passed along by your insurance carrier. There will be an assessment against insurance carriers, which will be passed along to everyone in the state,” said McLean.

McLean’s company, also affected by Katrina, had claims coming from some homes that we had policies on wind and flood damage.

“We have a lot at stake in Mississippi since we only write policies in Mississippi,” said Tom Quaka, president of Mississippi Insurance Managers of Jackson. “We don’t have the other 48 or 49 states to share the expense when an event like Katrina hits.”

“The Wind Fund pool will be self-sufficient if the 400% increase is approved. But there’s a feeling in places like Tupelo that they do not want to support the Gulf Coast and shouldn’t have to pay their insurance losses. The rest of the state doesn’t feel it should have to pay for the Katrina situation. The Gulf Coast should pay its own way. Insurance companies do not want to fill the gap,” Quaka said.

“Adding to the problem and concern in this area is that there is not a cap in Mississippi on Wind Pool assessments. The insurance industry could literally go broke if another Hurricane Katrina were to hit this season,” he added.
“With $700 million paid out in claims and only $175 million in reinsurance in the fund, these are very, very large numbers for a small state like Mississippi,” Quaka said.

Pending litigation

What also has many taking a wait-and-see attitude is the outcome of pending litigation by Mississippi Attorney General Jim Hood against several of the largest insurance companies that write the bulk of the insurance policies in the six coastal counties.

“Add to the mix and concern about the premium rate increases is what Jim Hood is doing in suing some of these big companies like State Farm and Allstate for excluding flood insurance from their policies,” said McLean.

“That is a concern, too,” said Dale. “We have that waiting in the wings and no one knows how that is going to turn out. You can bet that insurance companies are watching this very closely.”

Representatives contacted with State Farm and Allstate, two of six major insurance companies that write the majority of insurance policies in the six Gulf Coast counties, did not want to comment for the record on the situation due to the pending litigation.

One good thing, so far, is that Dale is “not aware of any companies who have indicated that they would not write any more insurance in Mississippi. I have not been told that.”
Tubertini, McLean and Quaka also indicated that, as of this time, they had not heard of any company writing Mississippi off. But that could change.

“This is not an easy situation but a decision will have to be made to protect the people and policyholders in the state as well as maintaining a competitive and healthy insurance industry in the state,” said Dale.

Contact MBJ contributing writer David Lush at mbj@msbusiness.com.

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