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Pending legislation could help stabilize market in state

What can be done to solve the insurance crisis in Mississippi? Tom Quaka, one of the state’s top insurance executives, says legislation that recently passed in the Mississippi House and Senate could provide the backstop against unlimited liability that insurance companies need in order to be able to continue doing business in the state.

Quaka, CPCU, is president and CEO of Mississippi Insurance Managers (www.Mimins.com), the largest managing underwriter in the state. He is also president of Brierfield Insurance Company, a Mississippi domestic, one of the top 25 insurance companies in the state. Quaka is considered one the industry’s top experts regarding the Wind Pool.
Brierfield only operates in Mississippi.

“One hundred percent of our employees are here,” Quaka said. “And 100% of our losses are here. We have to make Mississippi work. We can’t run and hide somewhere else. The only reason we are so-called experts on the Wind Pool is because we have so much at stake.”

At press time for this issue of the Mississippi Business Journal, the insurance legislation is now being considered by a conference committee to iron out differences between the House and Senate versions. Quaka said it is very significant that Gulf Coast business leaders — not insurance executives — led the charge for the insurance reforms.

“Gulf Coast business leaders have taken the ball and run with it not only to protect interests in the growth of the economy on the Coast, but also to protect the insurance industry and the availability of insurance for the redevelopment of the Gulf Coast,” Quaka said. “They have endorsed the insurance industry’s cause. Ron Peresich talked to the industry about what they needed and blended that with the needs of the Gulf Coast and Mississippi as a whole. He came with others to the Legislature with a very, very good legislative package. He has really been the flag bearer not just for the Coast, but for the industry.”

Peresich is a Coast attorney who, along with other representatives of the Gulf Coast Business Council, has spent many hours working on solutions to help resolve the insurance crisis that many believe is the number one obstacle to the Coast’s recovery. Currently no private businesses are writing new wind policies for homes on the Coast. Purchasing such insurance from the state Wind Pool is expensive and, in some cases, is considered cost prohibitive.

Quaka said the proposed fixes for the insurance crisis were better coming from business leaders, and it was also beneficial that rather than just being introduced as an insurance bill, it was part of an economic development package that included insurance reform.

“We are hopeful this very good legislation will help the growth of the Mississippi Gulf Coast, and provide some stability in the marketplace that will bring in additional investors,” Quaka said.

Currently the proposal is for insurance companies to be able to recoup a large part of their losses after a catastrophic event like Katrina by assessing a temporary surcharge on every policyholder in the state. If in place before Katrina, policyholders would have been accessed about $14 each, according legislative representatives.

After Katrina, the windstorm pool insurance companies had close to $700 million in losses and $500 million in assessments that had to be paid to cover Wind Pool losses. Each company doing business in the state is assessed a portion of the Wind Pool damages corresponding with their amount of insurance market share.

Quaka said in the case of Brierfield, its assessment was greater than surplus funds available.

“If it hadn’t been for reinsurance, we wouldn’t have been able to finance assessments and our direct losses, which was pretty much true of all carriers,” Quaka said. “The new legislation stops the open-ended obligations of the carriers meaning that under the conditions today if a storm hit, carriers wouldn’t know what their ultimate losses would be. They would have no idea what their exposures are. The hope for new legislation is there will be a bottom to the bucket; there will be a measurable future loss to prepare for.

“It is impossible to ask your stockholders to make an investment in a business when you don’t know what your ultimate liabilities are going to be. Whether they are stockholders in a stock company or policyholders in a mutual company, it is the companies’ obligation to protect their investments. Perhaps that is why State Farm has made some of the decisions they have made, to protect their policyholders.”

Quaka said if the legislation passes, and at this point the industry is hopeful, it will assure the companies that their liabilities will be measurable. If insurance companies can measure liability, they can accept risk.

“We are in the risk-bearing business, but we have to have a reasonable anticipation of what that is so we know how to price it,” he said.

The legislation passed the Senate and House overwhelming, and Quaka said that is a testament to the work of the chairs of the insurance committees in both houses of the legislature.

“Dean Kirby on the Senate side and Mark Formby on the House side have done a phenomenal job managing those bills,” Quaka said. “We in the industry believe fixing the insurance crisis is the most critical issue to the recovery of the Coast. I believe through the efforts of the business community of the Gulf Coast, we are on a path to do that. I cannot underestimate the benefit and leadership that was provided by the Gulf Coast in getting these measures done. They really have made best efforts to heal themselves.”

Shock waves ran through the state recently when State Farm, the nation’s largest insurance company, announced it would not be writing new homeowner’s or commercial insurance anywhere in the state. State Farm cited an uncertain political and business climate in Mississippi.

With State Farm out of the picture, might there be more opportunity for competitors to pick up the slack? Quaka compared the situation to Wal-Mart deciding to pull out of rural Mississippi.

“Who has the resources and capacity to fill that void?” Quaka said. “State Farm is a large and viable insurance company, and there are very few available resources to fill the void. The industry has only a certain financial capacity. When a large part is withdrawn, the void is not easily filled. Our insurance company does not even write the coverages that State Farm writes. We are a commercial insurance company, primarily, and they are principally a personal lines company, meaning the largest portion of their premiums are in homeowners and personal automobiles. Most of us don’t have the resources to add the liabilities that they are vacating.”

Mississippi Attorney General Jim Hood has proposed legislation that would require companies that write automotive insurance in the state to also sell homeowner’s insurance. State Farm continues to write auto insurance, and another big carrier, Allstate, is only renewing policies on the Coast if the homeowners also have other coverage with them such as auto.

Quaka said the industry is not happy with the position of the attorney general, who also sued State Farm and other carriers alleging the companies did not settle Hurricane Katrina claims fairly. That lawsuit was dropped when State Farm agreed to work out a settlement with its policyholders.

“We are uncomfortable with the position of the attorney general,” Quaka said. “We do not believe that his cause is going to help the redevelopment of the Mississippi Gulf Coast or encourage the investment in the insurance industry in Mississippi.”

The legislation, which was close to completion when this article was written, won’t be a total or final solution to the insurance crisis. Quaka said it is also imperative that the International Building Code be implemented throughout the Gulf Coast whether for commercial or residential structures. Quaka said stronger building codes are needed statewide. But some rural areas still don’t even have building codes. In some cases, local political leaders oppose building codes because their constituents don’t want to bear the higher cost of stronger building requirements.

“I think local politics may be the ultimate downfall of a standardized building code along the Gulf Coast,” Quaka said. “I do know that in time it will absolutely have to have the International Building Code mandated not only for commercial but residential.”

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

About Becky Gillette

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