Wind, flood insurance programs need higher premiums
Once upon a time, a storm named Harvey packed a onetwo punch: First came the wind, then came a flood. Millions of Texans suffered.
While it may be difficult to worry about hurricanes and flooding while sitting under a heat dome, they will come. They always do. Our government-backed insurance programs, though, are far from ready for another $125 billion storm steamrolling Texas.
My colleague Erica Greider recently wrote about online insurance broker Assurance naming Galveston the riskiest town in the United States to buy a beach house. But that’s only a slice of the growing potential for financial catastrophe, which extends across the state when flooding is included.
Most Texans can purchase private insurance against storm damage, at least for now. While some insurers have stopped issuing new policies in Florida because the risk is too expensive, some companies issue policies in most of Texas.
For properties in the 14 counties where private firms fear to tread, eligible owners have the state-sponsored Texas Windstorm Insurance Association as the insurer of last resort. TWIA (TWEE-ah) collects dues from insurance companies and charges premiums.
The financial risk rises, though, when state lawmakers prevent TWIA from charging its 228,577 home policyholders their fair share for living in wind-prone areas. Residential premiums are 20 percent below what they should be, and TWIA charges businesses 22 percent less than what is actuarially sound, according to the latest analysis released June
26.
Inadequate premiums are an old story at TWIA and something I’ve written about since 2018. The insurer hires outside experts to calculate what premiums are adequate for the
risk, and every year the accountants recommend charging more.
TWIA then holds a public meeting, their customers say higher rates would bankrupt them, and a lawmaker or two — usually state Rep. Todd Hunter of Corpus Christi — demands the TWIA board limit the rate hike. The board complies.
No one gets hurt until a hurricane strikes. TWIA has $4.2 billion to cover losses, but if they go higher, well, there’s a problem. Texas taxpayers could end up paying the difference.
TWIA’s next public hearing is July 11; as always, the public is invited to comment.
When it comes to flood insurance, homeowners are also stuck with a government-supervised insurer of last resort, the National Flood Insurance Program. The
NFIP makes TWIA look like a paragon of financial responsibility.
The Federal Emergency Management Agency runs the flood insurance program, which has been losing money for decades by paying out more in claims than it generates in premiums. FEMA revamped its risk assessment procedures and raised rates to more accurately reflect the risk.
Folks who live in flood plains are very, very unhappy. Ten states, including Texas, are suing FEMA to stop the rate hikes.
Hundreds of thousands also dropped their policies. If these people lose their homes or businesses in a flood, they will still come to the government for aid, even though they knew the risk. Politicians have a hard time saying no.
Sens. Bob Menendez, a New Jersey Democrat, and Bill Cassidy, a Louisiana Republican, have introduced legislation to overhaul the
NFIP. They want more money and time spent on prevention, including buying out high-risk properties.
The bill would also cap annual premium increases and provide vouchers for low- and medium-income homeowners and renters. Menendez and Cassidy stress the importance of keeping people in the program.
The problem with any insurance is creating moral hazard. Taxpayers should not subsidize people and businesses who choose to live in hurricane and floodprone areas where catastrophe is certain. Once a home or building is ruined, we shouldn’t allow it to happen again. And yet, we do.
The greater problem is how climate change is expanding the number of properties at high risk. A recent study in the peer-reviewed journal Nature Climate Change found property prices do not reflect the dangers of global warming.
“We find that residential properties exposed to flood risk are overvalued by $121 billion to $237 billion, depending on the discount rate,” researchers from the Environmental Defense
Fund wrote. “Low-income households are at greater risk of losing home equity from price deflation, and municipalities that are heavily reliant on property taxes for revenue are vulnerable to budgetary shortfalls.”
A rapid drop in property values would devastate local governments.
Later this year, FEMA will release the first drafts of new flood maps that will undoubtedly trigger consternation among politicians and developers. Expanded flood plains will mean lower valuations.
Texans must ensure they are adequately covered for this year’s storms, but they must also demand their elected officials prepare for future tempests.
Chris Tomlinson, named 2021 columnist of the year by the Texas Managing Editors, writes commentary about money, politics and life in Texas. Sign up for his “Tomlinson’s Take” newsletter at HoustonChronicle.com/TomlinsonNewsletter or Expressnews.com/ TomlinsonNewsletter.ctomlinson@hearstcorp.comtwitter.com/cltomlinson