Will homeowners get hit with steep wind insurance hikes? MS Coast’s fate rests in Jackson.
Drama playing out in Jackson this week will determine how much wind insurance rates will rise in Mississippi, exclusively affecting South Mississippi residents who live in the path of hurricanes and other major weather events.
A bill advancing in the Legislature would take money from the state wind pool that thousands of Coast residents rely on for hurricane coverage and move it to a health-care fund, which could mean less money to pay claims should a catastrophe strike.
The wind pool is limited to residents of the lower six counties and most of the policy holders live in Hancock, Harrison and Jackson counties.
The state Senate passed SB 2450 that calls for transferring any funds in the wind pool over $250 million to the State and School Employees’ Insurance Fund, which was hard hit during the coronavirus.
Mississippi Insurance Commissioner Mike Chaney said the diversion of the fees to state health plans is “not good government policy.”
“It was never the intent to be sent to anywhere other than the wind pool or to be used for restoration on the Gulf Coast,” Chaney said. “That’s in the law. That’s how the law reads.”
Will wind insurance bill pass in the House?
When the Senate bill reached the House Insurance Committee, chaired by Coast Republican Hank Zuber, the committee removed the repealer that would eliminate fees paid by out-of-state insurance companies that was set to expire on July 1.
The committee left the wind pool funds intact to cover reinsurance, which is the insurance the wind pool buys to help cover its losses. from a major storm. The committee also continued to dedicate wind pool money to be used for the purchase of rural fire trucks, which lowers fire ratings and insurance premiums throughout the state.
Zuber said the bill should come up for a vote in the House toward the end of this week and he feels confident the House will pass the bill, possibly with an amendment.
The bill than would then go to a conference committee of the House and Senate.
If no compromise is reached and no bill is passed, the $16 million to $18 million in fees raised each year will cease.
The disconnect of diverting money away from the wind pool into an unrelated insurance fund is drawing attention to Mississippi.
“The world is kind of watching to see what we’re trying to do,” said Chaney, who on Monday was asked to approve the wind pool reinsurance buy for the year.
The increase for wind insurance rates could go as high as 22.8% if the money from the wind pool is diverted, according to the wind pool board. For a homeowner paying $3,000 a year in premiums, that would be an increase of $684 a year.
The wind pool uses the money the Legislature might take to buy reinsurance to help cover the pool’s losses should a hurricane hit. Leaving only $250 million in the wind pool would leave the pool vulnerable if more than one major storm hits in the same year.
Escalating hurricane activity over the last few years and even Russia’s invasion of the Ukraine that disrupt the reinsurance markets are leading to higher rates, even before the legislative action. Chaney said the cost of reinsurance is extremely high and inflation is “out of sight,” leading to higher replacement costs for roofs and homes.
Homeowners, who are paying more for gasoline, food and most other products, already are facing a substantial increase in flood insurance premiums. Rates are expected to increase for 80% of customers under the National Flood Insurance Program program, which is making changes to that rates more accurately reflect risks.
Fee for out of state
Following Hurricane Katrina, wind pool rates increased 90% and more for homeowners when insurance companies stopped offering new customers insurance policies or canceled homeowner policies at renewal time.
Insurance companies doing business in the state were assessed $545 million by the wind pool to cover the losses from Katrina.
The licensed insurers insisted the non-admitted insurers also share any future assessment for MWUA costs and claims.
Non-admitted carriers, who aren’t licensed in Mississippi but are allowed to write insurance policies in the state, were charged a 5% annual fee, which has since been dropped to 3%, on the policies they write.
“These fees have been used to keep rates stable on the Gulf Coast for well over a decade,” Chaney said.
Without the wind pool keeping some of the non-admitted fees, he said, rates will go up on on the Gulf Coast.
Because the fee is assessed on non-admitted carriers on a statewide basis instead of only in the six counties of South Mississippi, Y’all Politics reports that “some lawmakers and state elected officials believe it is fair game to divert or sweep these funds away from their intended purpose of stabilizing the wind pool, setting up a Coast delegation versus everyone else fight.”’
How it works
“Many of us remember the impact on the property insurance markets in Mississippi following Hurricane Katrina, especially with the $545 million insurance company assessment, and no one wants to go back through those crisis days when property insurance markets in Mississippi cased to exist,” Scott Lemon, past chairman of the Mississippi Windstorm Underwriting Association, said in a letter to the state Senate.
“The entire premium for Mississippi is less than 1% of the insurance markets in the United States,” Lemon said in his letter. While wind insurance is vitally important to Mississippi residents, it is less consequential to the major insurance companies.
Sen. Scott DeLano, R-Biloxi, said the state self-insures part of the coverage to keep rates lower.
“We do that because it’s so incredibly expensive,” he said. The first $75 million in coverage costs as much as the second $150 million in coverage, he said.
During Hurricane Zeta in 2020, the wind pool had 4,637 claims totaling $32 million.
“If the Legislature does divert any of the non-adjusted insurer fee then the MWUS Board would request that in the event of certain catastrophic events that language be added so that the entire fees is automatically reinstated to the MWUS,” Lemons said in his letter to Senate.
Who and how much money is involved?
The wind pool has $344 million in funds after liabilities, said manager Joe Shumaker.
“I don’t think any of the board feels like we have an excess of funding,” he said. “We don’t know when the next big storm will hit — or series of storms will hit.”
Shumaker said to be eligible for the pool, properties have to be in the lower six counties. The breakdown is:
- 98% are residential properties
- 30% are between the beach and the railroad tracks
- 47% are between the railroad tracks and I-10
- 80% of the homes were built before 2005
With many insurers reducing policies or exiting Mississippi after Katrina, more than 46,000 policies were covered by state wind insurance.
Since 2006, the number of polices has dropped to 12,000.
Shumaker said he thinks that number may be as low as it goes.
Chaney said Westin, one of three non-admitted insurance companies with a total of more than 10,000 policies on the Coast, has notified him they are pulling out of Mississippi. Chaney said he’s asked these insurance companies to work with other commercial insurers that will write policies.
He also said insurance companies aren’t allowed to drop customers during the hurricane season.
The wind pool is the insurance of last resort for those who can’t get coverage from a commercial insurer.
But Chaney said as commercial carriers exit Mississippi or raise their rates, wind pool premiums could become less expensive than commercial rates. More homeowners would then switch back to the wind pool, he said, and more money will then be needed for reinsurance.
This story was originally published March 2, 2022 at 5:50 AM.
