The first Mississippi coastal wind residual market was created by the Legislature in 1972 stemming from a lack of voluntary market options partially as a result of Hurricane Camille losses incurred in 1969. The first version covered both fire and wind/hail perils, but the plan was amended in 1987 to include wind and hail only while the voluntary market accepted fire and other perils.
“It was basically a small plan until Katrina,” said Brad Little, assistant manager of the Mississippi Windstorm Underwriting Association. “For Hurricane Katrina, we had $1.8 billion in insured coastal values in the plan and we experienced a $720 million loss. The carriers were assessed $545 million of that loss and because of that the voluntary carrier market more or less dried up for both personal and commercial coverage.”
In 2007, House Bill 1500 changed the MWUA from a member association to a private, nonprofit organization. The plan was restructured to place some caps on admitted carrier loss exposure while allowing insurers the opportunity to recoup loss assessments. Little said these changes were designed to help prevent the loss of voluntary carriers that were extremely concerned about the previously uncapped loss assessment potential.
Before the change, Little said, if there was an MWUA plan shortfall after reinsurance kicked in, the shortfall was spread among all admitted property insurers. “The carriers had to pick up the tab after covering their own direct losses,” he said. Now carriers are still making up the difference but there is a cap on the assessment: no more than 10 percent of the deficit in any one loss or no more than 10 percent of the total statewide property writings. “Statewide property writings currently total approximately $1.2 billion,” said Little. Additionally, each carrier can potentially recover the loss assessments levied if they meet the Plan of Operation required voluntary coastal writings requirements. With the plan revisions implemented in 2007, the admitted voluntary property carrier assessments can be recouped with a policy surcharge applied to Mississippi policyholders statewide.
Post-Katrina to further help bring the market back, the MWUA came up with a new rule to allow for multilocation blanket coverage. A company that operates in all six coastal counties is able to bundle coverage and buy up to $1 million in coverage that is spread across all the locations.
Little said this allowed the MWUA to become the “first layer” of a layered program, allowing the owners to go to other insurers for additional layers of coverage. “It worked really well,” Little said. “It helped bring the commercial market back.”
Little said the commercial market in the coastal counties is “extremely healthy right now. There is ample competition for commercial risks both voluntary and surplus markets.”
Starting this year, changes to the multi location commercial rules will kick in for new business and next year the changes will affect policyholders up for renewal. The changes will impact large businesses with several locations, not a small business such as a sandwich shop.
“Those large commercial risks are hitting the modeling pretty hard and that impacts our whole book of business including the dwelling risks, so we’ve changed the way we are handling the commercial risk.”
The change to the rules attaches the deductible for commercial risks to the total value. This year the change goes into effect on renewals due in November and December. “The real impact will be in 2015 for the January through October expirations,” Little said.
The MWUA operates under the direction of the state Department of Insurance and is governed by an 11-member board of directors.
Almost every dollar of premiums collected by MWUA goes back into purchasing reinsurance, Little said. “We are working to get the reinsurance as high as we can get it as a buffer for not only the carrier from assessments but the policyholders from surcharges.”
While the commercial insurance market has returned, things on the dwelling side aren’t as good, Little said, especially south of Interstate 10.
“We see a little drop year over year but we haven’t seen the tremendous voluntary market improvements on the dwelling side like you’ve seen on the commercial side,” he said.
MWUA’s Scott Jerome, the coastal services director based in Biloxi, is working to coordinate the programs run by IBHS, MEMA and MWUA to get enough dwellings mitigated to attract the attention of the voluntary insurance carriers. “We are one of the few insurance organizations who would like to see our business go away to the voluntary market,” Little said. “We’re doing everything we can to help that as much as possible while striving to provide excellent service to those risk with no voluntary market options.”
One of the things MUWA will begin doing in November is updating surveys of coastal homes that haven’t been inspected in the last five years to see if there have been structural changes and to make sure there are no maintenance issues such as a blue tarp roof. “We will potentially be looking at 17,000 homes in addition to approximately 6000 homes related to new applications,” Little said. “The update inspections on the in force policies are needed and will be well received by the reinsurance markets providing plan protection.”
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