Letter from Texas: the Painful Symptom

by Julie Drenner on December 2, 2010

photo by Andy/Flickr, used under a Creative Commons license

High homeowners’ premiums are not the problem in Texas; rather, they are a painful symptom.  The true problem is the existence of natural disasters such as hurricanes and the increase of building in dangerous places while expecting others to pay the bill.  Attempts to artificially lower the price of insurance without addressing these two issues will simply exasperate the problem.  Political decisions lowering rates, for re-election purposes, exposes taxpayers to massive liabilities when a hurricane hits one of our most populated areas. Since we are unable to redirect or lessen the intensity of tropical storms, building code enforcement, property mitigation and a shift in human behavior is essential to decreasing the state’s liability.

During the legislative session, lawmakers will emphasize building the catastrophe fund instead of buying reinsurance to hedge against this exposure.  However, a catastrophe fund violates one of the fundamental principles of insurance, spreading the risk.  These funds concentrate risk in one state and shift the financial risk from the private sector to insurance buyers and taxpayers. Private reinsurance globally disperses the risk and is paid for up front, thus negating the need for a future government bailout. Ultimately, spreading risk fosters competitive markets while risk concentration amongst a few insurers and a state fund inhibits the free market.


In an ongoing effort to shed some light on how much of the $189 Million TWIA settlement went to homeowners rather than lawyers and elected officials, Texas Attorney General Greg Abbott ruled that the documents were subject to the Public Information Act.  The opinion clarified that confidential personal information would be protected as well as mediation and pre-mediation reports.  Key elected officials participated in the negotiations in their private practices.  Thus, it will be interesting to verify those individuals and how much money they received.  These payments are legal for legitimate legal services, yet the public must be concerned when TWIA is ultimately a state liability and inland policy holders as well as taxpayers are on the hook for the bills.


Texas could get redder. We still have two House seats in question.  Challenger Dan Neil has officially asked for a recount after losing to Democrat Donna Howard by sixteen votes.  And Myrna McLeroy and nine other candidates are in a special election to fill Rep. Edmund Kuempel’s seat after his fatal heart attack earlier this month. Early voting for district 44 begins November 29 and Election Day is December 14.

Until next week,

Julie Drenner, Texas Director

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