Whether in the news, in the office or on the street corners, insurance is a hot topic of conversation everywhere in South Mississippi. The availability and affordability of insurance has been listed by many business leaders as the top issue facing the Hurricane Katrina recovery.
It would be nice if there was a silver bullet. But there is no simple solution, says Sen. Dean Kirby of Pearl, chairman of the Mississippi Senate Insurance Committee.
“It has been a real challenge,” Kirby said. “I go to bed at night thinking about the Wind Pool, and wake in the morning thinking about what we can do for people who have suffered losses. We have had one hearing on it, and I have met for literally weeks of time with people from all over the state discussing it, trying to come up with a solution. We have been talking with Insurance Commissioner Dale. What we all know is this is not just a coastal problem. It is not just a Mississippi problem. It is a national problem. It is something we all have to work together on.”
Few people know that as bad as Hurricane Katrina and Rita were, it could have been far worse. Kirby was told by an insurance executive that had Hurricane Rita turned north and gone through Houston as predicted, it would have bankrupted nearly every insurance company in the U.S. and almost every reinsurance company in the world.
“That is how close we came to having a true mega-disaster worldwide,” Kirby said. “A lot of people don’t realize it. They think it is a Mississippi and Louisiana problem. It is not. It is much larger than just the Gulf Coast. It is actually a national and world problem. We need to be working with our congressmen and the U.S. Senate. But I do think reinsurance on the national level should be a last resort. I don’t want to put the federal government in the insurance business. It would not be a wise decision. It would end up being another tax, and I don’t want another tax.”
Another misconception is that the availability and affordability of insurance are just problems in coastal Mississippi. But Kirby, who had wind damage at his home and office in Pearl, points out that there was a lot of wind damage even in Central Mississippi.
“We need to make sure insurance companies continue to write wind insurance in counties north of the Coast, as well,” he said. “It could get to the point the insurance companies won’t want to write wind anywhere south of I-20. We do not want that to happen.”
When people are dropped for wind coverage by their insurance carriers, the last resort is the state’s Wind Pool. Wind pool rates have gone up 90% for homeowners and 268% for businesses.
“People can’t afford the 90% and certainly can’t afford the 268%,” Kirby said. “Small businesses are really suffering because of it. If they can’t open their doors, they can provide no jobs. We have to keep our small businesses open and keep the jobs.”
Although bills haven’t been completed at this time, Kirby said all the stakeholders have been putting forth a lot of time and energy. One advantage the state has is that other states like Florida have been wrestling with the problem for a longer period of time.
“The Florida plan is not doing well, actually,” Kirby said. “I don’t think we need to copy what other states have done. We need to look at what other coastal states have done, learn from their mistakes, and do something better based on their accomplishments and errors.”
One recommendation Kirby says has high priority is authorizing the Wind Pool association to set underwriting standards. Right now the Wind Pool has no underwriting authority, and some underwriting guidelines and standards would be helpful. Kirby said there needs to be different programs so there are high rates for less desirable risks that could be easily blown away.
Another recommendation is for the Wind Pool to be able to retain profits it generates during non-hurricane years, and not send those profits back to the insurance companies that currently keep those profits to buy reinsurance to help offset its deficits in the future.
“Those two things alone will make a definite difference in the Wind Pool,” Kirby said. “Now if there is no hurricane and no losses, then whatever money is left from premiums after expenses is sent back to the companies. I am for the Wind Pool being able to keep that money, and accumulate those funds to buy reinsurance. We need different rates according to the location and construction of the building. We have building codes on the Coast. Those that are built according to building codes should be granted some kind of credit. The Wind Pool can do all that if we give them underwriting authority.”
Rep. Mark Formby, Picayune, chairman of the Mississippi House of Representatives Insurance Committee, cautions that the state needs to be careful it doesn’t make it unprofitable for insurance companies to do business in the state.
Availability and affordability are two very different terms, Formby said, but they are being thrown around as if they were one term. If you make insurance affordable but insurance companies can’t make a profit, they aren’t going to write policies.
Formby expects to see 10 to 20 different bills filed in the 2007 legislative session all proposing a solution to either the affordability problem, the availability problem, or both.
“At this point we are looking at all possibilities,” Formby said. “We have ruled out nothing. I’m sure within the first few weeks of the session we will engage in debate in the committee, and possibly will have more hearings on specific legislation. We will go through the committee process to begin to refine language that will hopefully assist the consumer. Now the one thing we must avoid is making the Wind Pool the primary source of wind coverage with a premium that is not actuarially sound. If we do that and have another storm of this magnitude, the state would not be able to afford the loss.”
Some states that have tried to subsidize insurance premiums have gotten into a bad fiscal situation. Formby agrees with his counterpart in the Senate that it is important to learn from the mistakes of other states.
Many legislators know first hand the pain of major hurricane losses and the difficulties with getting insurance after the storm. Formby, for example, had damage to his home and a home he was remodeling. He was later informed by his insurance company that they were dropping his wind coverage. Although he was able to find another insurance company to provide coverage, he recognizes there is a tight marketplace.
His desk mate, Rep. Carmen Wells-Smith of Pascagoula, had eight feet of water in her Pascagoula home.
“Numerous members of the House and Senate lost their home and everything in it,” Formby said. “It is my intent to create a market that will be fair to both the insured and the insurer. But we have to try to affect the problem within the reality of our revenues. The State of Mississippi does not have the revenues of Florida, Tennessee or Louisiana. There is a proposal out there that basically would take $20 to $50 million out of the general fund to put into the Wind Pool in order to artificially lower the premiums. I don’t lean towards taking any money out of the general fund to subsidize the Wind Pool.”
Formby said he would not rule out using federal funds if that was available as long as the fix was short-term and not creating a longer term subsidized insurance program. And he is somewhat optimistic that by next spring some insurance companies will be more willing to write policies.
“We saw that after Camille,” Formby said. “After a year or so we saw the companies begin to write new policies again.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.