It was a tough decision but one that had to be made.
On July 28, Mississippi Commissioner of Insurance George Dale granted the Mississippi Windstorm Underwriting Association (MWUA) a rate increase of 90% in the homeowner’s program.
The amount of increase was considerably lower than the 398.8% the association had requested to cover losses from Hurricane Katrina.
Dale’s much-anticipated decision was being watched closely by the insurance industry and policy-holders due to the effect it would have on the insurance industry in the state as well as those waiting to rebuild following one of Mississippi’s worst natural disasters in September 2005.
“I knew I had to make a difficult decision,” said Dale. “The 90% decision really didn’t please anyone. It really was a no-win situation.”
The association, which provides coverage for high-risk homes in six Gulf Coast-tier Mississippi counties, requested the rate hike for residential property insured for wind and hail damage, at a public hearing on June 5 in Jackson. Rate hikes of 268% for commercial property and 60.4% for mobile homes were also requested.
The 268% rate hike request for commercial property was approved by Dale “but that was also a hard decision. But I felt that businesses could better absorb the loss with their insurance coverage than most residential property owners.”
The state’s Wind Pool fund sustained over $603 million in losses just from Hurricane Katrina-related damage, which was about one-third of the pool’s insured value. With only $175 million in reinsurance in the fund, insurance companies that write policies in the state were assessed the remainder of the costs.
The Mississippi Windstorm Underwriting Association was created in 1969 following Hurricane Camille by the state Legislature to provide wind and hail insurance for coastal property owners who could not obtain private insurance in the six-tier coastal counties of Hancock, Harrison, Jackson, Pearl River, George and Stone. The Wind Pool is funded through an assessment on all insurance companies that provide property coverage in the state.
In arriving at his decision, Dale said that our “actuaries recommended that if the Wind Pool fund were to purchase $600 million in reinsurance, they would recommend a rate increase of 192.8% in the homeowner’s program, which is a decision I could justify based on the figures. But after looking at everything, I couldn’t approve a 192% increase.”
The Wind Pool fund had already borrowed $42 million from Trustmark Bank for reinsurance to help with the funding squeeze, said Dale.
“Then if we figure in $30 million in Federal Community Development Block Grant funds through Gov. Barbour’s office for this year and another $20 million next year, we still have a problem but the extra funding helps,” he said.
“I’m pleased that the Mississippi Department of Insurance and Gov. Haley Barbour’s office were able to develop a program to assist the Wind Pool fund,” said Dale.
“Without the infusion of these funds from the Governor’s Office we would be looking at substantially higher rates. That’s not something we wanted to do right now. We recognize that the $50 million is not a final solution.
“However, the infusion of $30 million immediately and the rate increase gives us time to work with the Legislature to come up with a solution to the problem, because we know we cannot go back for another $50 million next year. If the state can go without a major storm this year, it is my sincere hope that future rates will level off or possibly even decrease,” said Dale.
Adding to the funding problem even now is that the many insurance companies are putting around 3,300 policyholders per month into the Wind Pool fund due to the difficulty of property owners in finding insurance companies willing to write policies, which includes wind or flooding, Dale said.
“I regret that Wind Pool policy holders will have to pay any increase in premiums. However, an increase is necessary in order to maintain the stability of the program. Without the Wind Pool, many residents would be unable to get any wind coverage due to a number of companies choosing not to write the wind on the Coast,” said Dale.
“This department has worked long and hard to come up with the least painful solution to the Wind Pool rate increase filing request. I think a 90% increase in the homeowner’s program is considerably less painful than a 397% or even a 192% premium increase. I want to stress that this rate increase is not going to affect everyone’s homeowner policies on the Coast. Those who continue to get insurance from the voluntary market will not be affected,” said Dale.
“We will continue to work with all interested parties in an effort to find a solution to make insurance more affordable and available on the Mississippi Gulf Coast. The State of Mississippi must have affordable and viable insurance for the Gulf Coast to recover and rebuild. We can not recover unless we all work together to solve this problem, “said Dale.
David Treutel Jr., president of Treutel Insurance Agency Inc. in Bay St. Louis, is concerned with the effect Dale’s decision will have on the insurance industry and the Wind Pool fund.
“I guess this is the best we can do at this time,” said Treutel, who has served on the Mississippi Windstorm Underwriting Association board of directors for over 12 years. “Costs to the Wind Pool fund have increased tremendously for reinsurance due to the staggering losses experienced from Hurricane Katrina.”
“There aren’t a whole lot of insurance companies writing insurance policies on the Coast. It’s very difficult to get insurance coverage right now. Many are having difficulty getting any insurance at any price.”
Treutel’s company has already paid out over $250 million, which represents over 8,000 claims with 90% of those claims coming from Hancock County alone, he said.
“We’re just glad we’ve been able to put money into the hands of our policyholders,” said Treutel. “But we need a better system to protect the insurance companies, policyholders and the State of Mississippi. There needs to be federal backstop to help with natural disasters — especially for small states like Mississippi,” Treutel said.
“I’m very much in favor of finding a better way of doing this and protecting everyone all the way around. Maybe federal help is an answer. It’s certainly something we all need to be looking into,” Dale said.
Treutel is also concerned at the rate increase for small businesses in the six coastal counties.
“This is devastating, and not something many of these particularly small businesses can absorb. They took a major hit with this decision,” said Treutel, who is also president of the Gulf Coast Community Foundation.
And for those who think Dale’s decision came easy — think again.
“I sought options for a solution to the Wind Pool issue in Mississippi that would be in the best interests of all Mississippians. Coastal residents were opposed to any increases while opposition came from policyholders around the state that did not want to see their premiums rise to compensate for additional Wind Pool assessments with the passage of a large rate increase request,” said Dale.
As Dale and others seek a more equitable and permanent solution to the Wind Pool funding issue, he is also watching what is happening in other states with coastlines such as Louisiana, Alabama and Florida.
“I will continue to monitor the Wind Pool on a monthly basis and if things do not improve, rates may have to be re-examined to cover the fund. It’s too early to tell but we will be monitoring the situation closely,” he said.
Contact MBJ contributing writer David Lush at firstname.lastname@example.org.