Hurricane Ike Could Leave State Vulnerable to Insurance Companies

TWIA's purpose (0.00 / 0)

Before we go and bash the insurance companies let's get a better understanding of the structure of this market. TWIA, just like NFIP, was created to provide coverage for those areas vulnerable to catastropic weather conditions, namely the Texas coast.

You are correct on the purpose and structure of insurance. What you fail to mention is that the unfair aspect of spreading the costs of catastrophic situations to residents who will never encounter those conditions. In other words why should someone in San Angelo pay premiums to cover the costs of homes insured in Galveston?

Does that mean Galveston doesn't deserve coverage? No and that's why TWIA was created. However, as long as people keep building expensive homes in vulnerable areas the cost to insure and cover the losses of those homes will continue to rise.

Profits are a part of the insurance industry as they are a business just like Wal-Mart or Best Buy. Losses are also a part of the business. Covering catastrophic events like Ike can only serve to sink the industry. If the industry goes bankrupt then there will be no coverage which is a worse condition.

It's easy to bash business but it's also unproductive. Some companies do try to take advantage of consumers in unscrupulous manners. But the major carriers in the industry are just trying to provide a service to consumers in the most cost effective manner. They work hard to meet the needs of the consumers and regulatory agencies and take advantage of the best in technology and business practices to create better products and services.

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by: RBearSAT @ Sat Sep 13, 2008 at 17:00:42 PM UTC

Partially right, partially wrong (0.00 / 0)

Thanks for your comments and your spirited defense of the insurance industry.  In some ways, though, you've reinforced the argument I am trying to make: that the inadequacies of insurance coverage are the result of insurers abusing the privilege of doing business in Texas and policymakers letting them get away with it.  

You mention the "unfair aspect" of spreading the risk "to residents who will never encounter those conditions."  Well, if you and I both have fire insurance and your home burns down, guess what?  I've been stuck helping to pay for a condition I've never encountered.  THAT'S THE IDEA OF INSURANCE.  Too many insurers try to play games with underwriting, micro-slicing the market in order to cherry-pick the risks they want to cover -- and to leave the ones they don't to their own devices.  

Current pricing mechanisms allow for variances in cost where there are variances in risk.  Taken too far, however, they penalize people who, like you, contribute to the spreading of the risk and, like you, ought to be covered.  

Speaking of people on the coast, you mention the "expensive homes in vulnerable areas" -- another example of bashing manufactured villains to support an argument.  If you've been to Galveston Island or other coastal communities, though, you'd know that for every million dollat beachfront home there are plenty of modest bungalows and tract houses.  The people that live in those homes teach in our schools and work in our hospitals, keep out ports functioning as a big part of Texas' economy, and even sell insurance to their neighbors.  

We agree that a healthy insurance industry is important to Texas.  In years when the Texas homeowners insurance industry is making record profits, the question is begged: "how healthy is healthy, and for whom?"  
 

DeeceX: making Texas safe for democracy

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by: DeeceX @ Sat Sep 13, 2008 at 23:07:53 PM UTC

[ Parent ]

Risk models understood (0.00 / 0)

I agree with you regarding spreading risk among a group. However, your example of fire is different than that of wind or flood exposure. Building beside a river is a different risk model than building a home in general. Insurance coverage for fire is the same across Texas regardless of the location. Insurance coverage for flood is different as is wind.

Regarding buildings within a high risk area, the general premise of risk exposure is that those who choose to build in the areas should bear the risk of the areas. I don't disagree with your premise regarding what they do but it doesn't change the model. If you choose to live in a high risk area I should not be forced into supporting your risk since it is not a general risk. It is a localized risk.

I'm not sure what figures you are quoting regarding record profits but every major carrier that I know of has endured losses over the past several years and has had to re-evaluate their risk models. Please provide facts for that statement.

In the end we are really talking about the underwriting of different risk models. If the citizens of Texas feel it appropriate to underwrite the risk of a few then so be it. But I challenge you will have a hard time selling that idea to very many.

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by: RBearSAT @ Sat Sep 13, 2008 at 23:16:20 PM UTC

[ Parent ]

Full disclosure (0.00 / 0)

Oh, and in the interest of full disclosure, I do work for an insurance company. However it is a reciprocal which does not have stockholders and returns the profits back to the policyholders. Maybe that's a model that would be more appropriate for your arguments.

I choose not to reveal the name since my job and employer are not a part of this discussion. The issue of high risk coverage is what we are really debating.

I see the challenges faced by the industry and how easy it is to bash the industry, even for all the carriers try to do to underwrite and insure their policyholders. We strive each day to bring costs down, improve service and make risk management a way of life. Some choose to follow our advice, others choose to continue to live in risk. All we can do is insure and cover them the best we can.

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by: RBearSAT @ Sat Sep 13, 2008 at 23:21:41 PM UTC

[ Parent ]

Thanks for your comments (0.00 / 0)

... and the full disclosure.  By way of full disclosure on my part (although I think most BOR regulars know this), I am a former insurance regulator and gubernatorial and legislative staffer.  

DeeceX: making Texas safe for democracy

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by: DeeceX @ Thu Sep 18, 2008 at 15:34:50 PM UTC

[ Parent ]