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.

  • shirley heflin

    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.

    So very true…and the same goes for:

    When it comes to LIFE and ALL IT HAS TO OFFER (both good & bad), there are concepts we should all grasp:

    1. There is no free lunch and
    2. We are all in this together.

    Have a great weekend.

    SHIRLEY HEFLIN

  • My family is one of the largest land owners in Bailey County. On a trip this week to Bailey County to meet with the County tax appraisal board (I am protesting my more than 100% increase in Ag productivity value) I had lunch with two dear friends who still live in Muleshoe.

    During our time together my friends both commented on how state run insurance programs should not be funded by their tax dollars and that the Texas gulf coast must pay its own way with out using tax dollars from areas outside of the State designated “catastrophe zone”. I told my friends not to worry that my understanding is that if TWIA runs out of money the shortfall comes from other insurance companies prorate share and not from the State.

    The whole while I was wondering how that could happen when five of TWIA’s nine member management panel come from those same insurance companies that would be asked to pick up the tab. I guess one why to avoid that would be to just not pay all those pesky claims – at least until they collected enough new premiums to pay them.

    Could that actually happen? I was just wondering.

    Matt B. Phelps, P.E.

  • shirley heflin

    Great sense of humor, Dr. Phelps…and so realistic! :)

    SHIRLEY HEFLIN