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Allstate's insurance rates set for increases

By Laura Elder
The Daily News

Published June 30, 2006

In a move that could boost the cost of homeowners' insurance for some coastal policyholders by as much as 20 percent, Allstate Corp. said Thursday it planned to increase rates across Texas.

But motorists received good news as the company is to decrease its automobile rates by about 3 to 5 percent.

The state's second-largest insurer cited the rising cost of reinsurance when it filed for the homeowner-policy increase with the Texas Department of Insurance.

The filing called for a 5.6 percent hike across the state, but coastal residents will pay more to reflect the risk of hurricanes, said Joseph McCormick, an Allstate spokesman.

Allstate rates on average will increase by between 8 percent and 10 percent for Galveston County residents who live in brick homes.

But residents in wood-frame houses could see their rates jump by 20 percent, although that would be rare, McCormick said.

"Most will be in the 15 percent range," he added.

The increases, effective July 22, affect only policyholders who buy their windstorm coverage through Allstate. It won't affect customers who buy their windstorm coverage through the state pool managed by the Texas Windstorm Insurance Association.

In May, Allstate notified customers it would drop windstorm-policy protection from homeowner coverage starting in October.

The company has 10,000 homeowner-policy customers in Galveston County, about 6,500 of whom already buy windstorm coverage through the state pool, which is the insurer of last resort for high-risk properties.

Allstate warned earlier this year it planned to raise rates because of the climbing cost of reinsurance, a method by which insurers buffer their risk by purchasing their own insurance to cover part of the cost of compensating customers' catastrophes.

The company has $650 million in reinsurance coverage in Texas, compared with $550 million last year.

Its rate hike comes after State Farm said it planned to raise rates for some coastal customers on average 57 percent because of reinsurance costs.

About 30 percent of a consumer's premium dollar is based on reinsurance costs.

Texas law allows Allstate to begin charging the new rates upon filing them with the Texas Department of Insurance. But department officials can review the rate changes and order refunds to consumers if they deem the increases excessive, or they could stop the increases before they take effect.

In May, Texas Insurance Commissioner Mike Geeslin signed an order requiring Allstate Texas to reduce rates for all Texans by 5 percent.

The order also required Allstate to refund to policyholders the amount it has overcharged them since December 2004, plus interest at an annual rate of 13.5 percent.

That refund amounted to about $60 million, according to reports.

 

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Here is somemore

Windstorm committee looks to the future

By Greg Barr
The Daily News Published June 30, 2006

GALVESTON - While residents worry whether another big hurricane could menace the area, state legislators began the process this week of figuring out how to foot the bill - and who will pay - if such a storm slams into the Texas coast.

The Joint Select Committee on Windstorm Coverage and Budgetary Impact, co-chaired by Sen. Mike Jackson, R-La Porte - who represents part of Galveston County - and Rep. John Smithee, R-Amarillo, met for the first time Wednesday.

About 90 people attended the session at Texas A&M University at Galveston, as did 10 of 14 committee members, charged with the task of figuring out how to shore up the state's windstorm insurance pool. The committee must make recommendations and draft legislation with proposed changes by Nov. 1.

After almost four hours of testimony and comments from government officials and a handful of county residents, one thing became clear: Windstorm insurance rates, especially for those who live near the coast, will continue to climb.

Not as certain is how quickly those increases will come, what role private insurers will play or how far across the state the financial risk will be spread.

"We need to make sure our windstorm pool is in the best possible shape," Jackson said. "The last couple of years have scared a whole lot of people and (windstorm insurance) is now a huge issue for the coast … but also has an effect on the state's economy.

"We've seen a retreat (by private insurers) and need to address that problem."

The windstorm pool has 63,000 policyholders in Galveston and Brazoria counties, two of 14 high-risk counties it covers.

Galveston County represents about 44 percent of its total statewide exposure of $29.4 billion in insured property.

The committee's task is to try to bolster the pool, formed in 1972 and administered through the Texas Windstorm Insurance Association.

With about $1.3 billion in funding, the pool would easily be wiped out if the state's coastline was devastated by a storm similar to Hurricane Katrina, which struck Louisiana and Mississippi in 2005, administrators and politicians say.

James Oliver, general manager of the association, and state Insurance Commissioner Mike Geeslin made lengthy presentations and were grilled by the committee members, including Sen. Kyle Janek, R-Houston, Jackson and Rep. Craig Eiland, D-Galveston, whose districts include parts of Galveston County.

The windstorm association this year proposed rate increases of 19 percent for residential policies and 24 percent for commercial policies. Geeslin in April approved hikes of 3.1 percent for residences and 8 percent for commercial properties.

"To give the impression we can fix (under-funding) with one rate increase is misleading," he said. "It's going to take a long time to fix this problem. Somebody has to pay, and over what period of time."

Oliver pointed out that Texas was lucky to have seen the extensive damage from Hurricane Rita limited to a small region of the state.

The windstorm pool had manageable losses of $160 million from Rita, he said. About 6,650 claims have been filed from Galveston County since the storm brushed the area in September 2005.

However, Oliver estimated that if Rita - a Category 2 storm - had struck Galveston Island, where about half of the city's businesses and almost 90 percent of residences are insured by the windstorm pool, those losses would have reached $1.5 billion, more than the pool's value.

What's more, a direct hit by a Katrina-like storm on Galveston would result in losses of more than $5 billion, with estimated private insurance-industry losses of more than $30 billion, he said.

Several ideas emerged from the discussion, including the notion of adding steep insurance surcharges for vacation or second homes within the pool's coverage area.

Two county residents, both design engineers who inspect homes, said a key issue is the growing number of homes in the northern part of the county that do not meet windstorm codes.

Barry Boswell, one of the engineers and a Friendswood resident, said he was not happy with the idea of bearing the risk for a neighbor's house that is not be up to code.

It could break apart during a severe storm and damage his home, he said.

Jackson posed the big-picture question about whether the state should even be in the insurance business, although both Oliver and Geeslin said that, with big companies such as State Farm looking to pull out of the windstorm market, state involvement is a necessity.

Some lawmakers representing constituents in the northern part of the state questioned whether those residents would have any interest in supporting bonds or other measures that would prop up windstorm coverage for southern Texans.

Both Eiland and Janek said after the meeting that one often-mentioned proposal - issuing either pre-event bonds to immediately supply cash after a storm or post-event bonds to pay for storm losses - caught their attention.

Janek said that, although some "big fix" ideas were presented, a series of smaller fixes would be a more likely scenario.

"We have to have more funding and need to find that money eventually," he said. "I think post-event bonds make a lot of sense."

Eiland said that more rate hikes are inevitable, but how they are administered is critical.

"Nothing is going to be easy, but I think we heard a lot of good ideas," he said. "The hikes need to be gradual, in a stair-step solution, so there isn't a big rate shock. But I also think some bond capacity is a given to boost our reinsurance opportunities."

The committee will next meet in August in Corpus Christi, at a date to be determined.