Multistate solution eyed for Gulf Coast wind insurance issues

Will states join forces to create their own wind reinsurance market? Recommendations could be delivered by end of year

By Lyle Adriano

The Coastal Insurance Working Group (CIWG), responsible for coming up with viable answers to rising wind insurance premiums paid over the past decade by homeowners who live along the coast of Alabama, has come up with several bright ideas to lower costs.

The CIWG, including representatives of Fairhope-based Homeowners Hurricane Insurance Initiative (HHII), Alabama legislators, insurance representatives and the Alabama Department of Insurance (DOI), has met regularly since summer and hopes to deliver recommendations to Gov. Robert Bentley by Dec. 31.

One such idea is the creation of a coastal insurance band, wherein numerous Gulf Coast states create their own reinsurance market. This solution could potentially lower risks and costs associated with wind insurance. The coastal band insurance entity could be a reinsurer or a hurricane insurance policy provider for homeowners.

Republican State Senator Bill Hightower has endorsed the solution, asking the governor’s office and DOI to consider the idea.

A number of factors affect the pricing of wind insurance premiums, and one of the most important is in the cost of reinsurance, which insurance companies purchase to protect themselves from losses. As the DOI does not regulate reinsurance companies, insurers are permitted to include reinsurance costs in the premiums of their customers.

Michelle Kurtz, HHII liaison, believed that any insurance entity created to answer the Gulf Coast’s wind insurance issues would need adequate financial backing to cover claims, no matter how severe.

“We have to be able to handle Armageddon,” she said. “We have to be able to handle what the private sector can handle. We need to plan to handle a Katrina.”

Hurricane Katrina is the most costly natural disaster in the country, to date. According to the Insurance Information Institute, the insurance industry had to shell out over $41 billion for more than 1.7 million claims following the calamity across six states. Data from Louisiana’s Property Insurance Clarity Law revealed that Katrina cost insurers $12 billion in the coastal band that runs 50 miles inland between Texas and Florida.
 

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