As Isaac bore down on the northern Gulf Coast last week, newly purchased reinsurance allowed the head of the Mississippi Windstorm Underwriting Association to concentrate on the storm’s path and its aftermath rather than worry over covering claims.
The new reinsurance — and Windstorm Underwriting Association chief Joe Shumaker’s sense of security — had been in place since March. “If they have a loss we’re prepared to settle that loss,” he said last Monday, referring to $7.2 billion of “limits in force” coverage for this year’s hurricane season.
That amount is based on a 100-year “probable maximum loss” of $7.4 billion for the 2012 season. Of the $7.2 billion of limits in force, $6.79 billion covers residential and $451 million is assigned to commercial losses.
“We have cash on hand and reinsurance in place,” said Shumaker, whose agency has benefited from several years without a storm doing major wind damage on the 70-mile coast.
Created by the Legislature in 2007 as a residential and commercial insurer of last resort for coastal Mississippi, the Windstorm Association is funded by assessments on the state’s private casualty and property insurers and above-market premiums to clients. The pool ended last year with about 49,000 policies.
The windpool’s reinsurance serves as a reserve providing close to $800 million in windstorm coverage. For 2012, the pool carried $750 million in reinsurance for which it paid $65 million in premiums, according to its 2012 Bond Structure Report.
The Windstorm Association limits its exposure in each of the half-dozen coastal counties. Densely populated Harrison County had a limit of $3.6 billion in coverage as of Oct. 30, 2011, followed by Jackson County at $2.68 billion, Hancock at $1.13 billion, Pear River at $145 million, Stone at $50.4 million and George at $43.4 million.
The pool provides coverage up to $1 million for one- to four-family dwellings and $250,000 for contents.
Since formation of the windpool, a pair of private insurers have begun selling polices on the coast.
Virginia-based PURE Insurance — the newest arrival to Mississippi’s property and casualty sector — is ensuring homes south of Interstate 10 and elsewhere on the Coast but is limiting coverage to high-value homes that meet specific storm resistance and elevation standards.
Operating from an office in Gulfport, Coastal American Insurance began with a few hundred wind and flood policies on the coast in fall 2010. Today, it has 1,800 policyholders, according to Ned Dolese, Coastal American’s marketing manager
Unlike PURE Insurance, Coastal American largely limits its coverage to dwellings valued at $300,000 or below.
Coastal doubled its policy numbers after doubling its purchase of reinsurance for this year, Dolese said. About half of the increase in customers came from the windpool, he said. “We anticipate taking more next year.”
The underwriter requires its clients to buy both wind and flood coverage — regardless of whether their property is in a federally designated flood zone.
The dual policy requirement is designed to eliminate any confusion that may occur in determining whether wind or water caused specific storm damage, Dolese said.
“That whole thing was crazy to begin with,” he said of disputes between property owners and insurers over the true source of damage.
The flood coverage rule is also rooted in Coastal American’s belief that water from Katrina’s storm surge caused the predominance of damage to coastal property and would likely be the major destructive force from a future hurricane on the Coast.
With Isaac closing in last week, Dolese predicted water — this time from huge amounts of rain — would once again be the principal villain. “We don’t think it will be totally water but we think there will be a lot of water involved,” he said.
Dolese concedes that Coastal American’s doubling of policy numbers occurred quickly but he insists “we have been very cautious about it.”
The company has limited coverage to properties either retrofitted for storm resistance or built to more stringent codes adopted after Katrina, according to Dolese.
Marketing of the polices has been helped, he said, by offering homeowners high deductibles and letting them insure property contents for less than full value, going as low as 25 percent. ”We’ve expanded our options,” he said.
Today, customers can select deductible options ranging from 3 percent to 5 percent for wind and hail damage, Dolese added.
Breaking down the policy types, Dolese said of the 1,800 policies, 1,300 are for wind and about 500 exclude wind. Of the 1,300 wind-and-water policies, 1,100 are in the coastal counties of Harrison, Jackson and Hancock. Of the total, 800 to 900 cover properties south if Interstate 10, he said.
He said Coastal America is comfortable with the exposure south of the east-west interstate. “Over 80 to 90 percent” of the homes south of the interstate have either been retrofitted or built since Katrina, Dolese said.
He said the Tampa-based Insurance Institute for Business & Home Safety angered him with its report last fall that put Mississippi last among 18 deemed most vulnerable to catastrophic hurricanes.
A 2006 state law required the counties of Jackson, Harrison, Hancock, Stone and Pear River to enforce all of the wind and flood mitigation requirements of the 2003 International Building Code and the 2003 International Residential Code. The codes have been updated and adopted in the years since, according to state officials.
Dolese said the Insurance Institute may have awarded Mississippi a better ranking had its report taken into account the strictness of building codes adopted by the coastal localities and metro areas in other parts of the state in the past half-dozen years.
“I travel a lot,” he said. “I’d put the Mississippi Gulf Coast up against anybody.”
Shumaker said the Insurance Institute’s report accurately noted that Mississippi does not have a statewide building code. But the report would have been more accurate had it considered that “many jurisdictions’ in the state have adopted new codes and strongly enforce them, he said.