A recent posting to the The Sun Herald column “Sound Off” stated: “Finally got the floor plans approved to rebuild the house. Had to get three different insurances, one for flood ($500 a year), one for homeowner’s ($1,400 a year) and one to cover wind and hail (because my location is south of Interstate 10, $5,400 a year). How can I afford to build a house now with those insurance costs? How can anyone afford these insurance costs, especially on fixed incomes? Is it any wonder that there isn’t more building going on?”
Insurance quotes like those can throw a spanner into the works for people rebuilding on the Mississippi Gulf Coast. With no major companies writing new wind and hail coverage in the three coastal counties, and some companies not renewing wind and hail coverage on premium anniversary dates, people rebuilding or buying a new home or business have the expensive state Wind Pool as the only option.
Lee Harrell, deputy insurance commissioner for the Mississippi Department of Insurance, said while some carriers are looking at risks individually when considering writing wind coverage, those are becoming fewer and fewer as time progresses.
“I hope if we find some ways to solve part of the Wind Pool problem, that will entice them to come back on the Coast and write,” Harrell said. “This is not something the State of Mississippi can solve on its own financially. It will take a combination of state and local government, the insurance industry and some involvement from the federal government.”
Prior to Katrina the Wind Pool, which is considered the insurance of last resort, had $1.8 billion in insured value in Mississippi with $175 million in reinsurance, which was estimated to be enough to cover damages in a storm likely to only occur once in 250 years. The Wind Pool had more than $700 million claims from Katrina.
The Wind Pool operates as a non-profit — without profits, dividends or surplus. Only sufficient premiums are collected to buy insurance and pay out claims. Harrell said since the Wind Pool was $545 million short (a figure that includes administrative costs), insurance companies who write business anywhere in the state — not just the Gulf Coast — were assessed that amount to pay the claims.
“Those insurance companies will then pass on the cost of that $545 million to their policy holders,” Harrell said. “As an example, one insurance company that didn’t even write on the Mississippi Gulf Coast had a Wind Pool assessment of over $50 million. They have requested a 58% increase for every policyholder. Another company is looking at a 28% increase and had only a very few customers on the Coast. The Wind Pool assessment is based on a pro rata statement. The Wind Pool right now is the driving force in the whole property insurance market in Mississippi regardless of where you live. Companies are re-evaluating writing even in North Mississippi not because it is a bad risk, but because it makes their Wind Pool assessment go up.”
Long-term solutions for both home and business owners are considered critical to the economy. About $30 million in federal funds was used to offset the increase in premium costs for the Wind Pool for homeowners. Harrell said that money was used to reduce the Wind Pool rates down to 90%.
“We are still looking at ways to pump funds into the commercial Wind Pool to help immediately reduce some of the rate increase,” Harrell said. “That is just short term. We still have to find a long-term solution. Florida issued over $2 billion in bonds to keep its Wind Pool afloat, and is still having problems. In Mississippi, we don’t have the resources to keep pumping money in. Florida’s Wind Pool problem is greater than ours. We are where Florida was three or four years ago. Florida has had major hurricanes almost every year, and they have no market in Florida other than their Wind Pool.”
One of the things Insurance Commissioner George Dale is recommending is a federal safety net for Wind Pool, similar to what was done for terrorism. After 911, no one would write terrorism insurance. Congress stepped up and filled the gap.
“That has worked great since 9/11,” Harrell said. “This isn’t just a Mississippi problem. The federal government is already involved in crop insurance and the flood insurance program.”
It is no exaggeration to call the current situation a crisis, and one that affects the entire state, not just South Mississippi. And the Wind Pool liability is increasing as companies like Farm Bureau have totally gotten out of wind exposure on the Coast. Harrell said currently the Wind Pool is more than $4 billion in insured valued, and it is predicted that will increase to $6 billion by year’s end.
“We don’t have adequate reinsurance now based on a projected $6-billion portfolio,” Harrell said.
Some of the biggest carriers like State Farm, Allstate and Nationwide are keeping most or all of the wind coverage for existing customers on the Coast. Harrell said what the state has to do is make sure it is profitable for companies to keep what they have, and also find ways to bring them back to the marketplace writing new policies at rates that people can afford.
“There is an affordability issue,” he said. “You aren’t going to be able to make a company write when they are losing money. There is a crisis. How are we going to make insurance available and affordable? If it is available, it might as well not be available if it is not affordable.”
Allstate Insurance senior communications consultant Kate Hollcraft said Allstate is not taking on new homeowner’s business in the six coastal counties: George, Hancock, Harrison, Jackson, Pearl River and Stone.
“One exception to that is a current customer selling a home and buying a new one,” Hollcraft said. “We consider that a placement policy so we would take that business.”
But Allstate is excluding wind and hail coverage for monoline customers, customers who only have home and no other insurance such as automobile coverage. A monoline customer in the six coastal counties will, on the renewal date, have to go to the state Wind Pool for wind and hail coverage.
“If you have home and auto, then you renew as usual,” Hollcraft said. “We recommend in general that customers talk to their insurance agent to find out if there are discounts or other offers the company may have, as well as find out what the insurance company is doing in the area you live in. Keep the relationship going with your agent and you can find out some great opportunities.”
Joe Case, spokesperson, Nationwide Insurance, echoed that advice.
“The best thing that policyholders can do is make sure they have an open line of communications with their insurance agent,” Case said. “Make sure you talk to your agent to make sure you have appropriate coverage to suit needs, understand what is and is not covered and the amount of deductibles. Make sure you have appropriate coverage for flood because the standard homeowner’s policy does not cover flood damage. The best thing is keeping an open line of communication with your agent and taking the opportunity to understand your coverage.”
Case said Nationwide is renewing existing customers in coastal areas for wind and hail, but is not writing new wind coverage in the three coastal counties. Any applicant for new homeowner coverage in the three coastal counties must obtain wind coverage from the state Wind Pool.
It is difficult to predict when companies might start writing wind policies again on the Coast.
“It is a fluid situation,” Case said. “We are constantly looking at the marketplace and strategy. At the end of the day, it is about maintaining long-term viability for customers and making sure we can be there for them when they need us the most.”
Contact MBJ contributing writer Becky Gillette at email@example.com.