One of my TWIA slab case clients was very happy about the proposed resolution of her claim. Her tone changed when she mentioned that TWIA raising rates five percent. I have often felt that our elected leaders are in a no-win situation when the people electing them to office hold a noose over their neck when it comes to government sponsored insurance. Voters want lower rates, even if that means the government charges absurdly low rates and unfairly competes with private enterprise.
A recent Government Accounting Office (GAO) report of state sponsored catastrophe programs brought this to my attention. The report summary mentioned:
Officials from some state programs said that they limit participation in the reinsurance or ILS markets because the coverage they want is not available at a price they are willing or able to pay without significantly increasing premium rates charged to homeowners.
The result is that most state sponsored programs rely upon the luck of not having a catastrophe where they would have to call upon a state’s general revenue obligations to pay for the debt. Alternatively, our state politicians hope the federal government will bail out the state’s fiscal irresponsibility. The "bail out" nation mentality is alive and well in state sponsored insurance.
Claire Wilkinson’s post at the Insurance Information Institute, State-Run Insurers Lack Risk-Based Pricing, brought this report to my attention. I agree with her observation and the finding of the GAO which concluded that "most state natural catastrophe programs do not charge premium rates that reflect the full risk of loss."
In Florida, I publicly commented on some of these issues while serving on the Citizens Property Insurance Mission Review Task Force, and noted some of them in Taking Tough Positions On Citizens Property Insurance Task Force. Citizen’s is correcting this problem by allowing rates to rise gradually. In Texas, TWIA tries to enforce mitigation as a condition to get insurance and therefore lower severities of its expected losses.
When it comes to insurance and public policy, there are probably two concepts all should remember:
1. There is no free lunch.
2. We are all in this together.
Have a great weekend.