A study commissioned by the Independent Insurance Agents of Texas (IIAT) shows that the economy of the entire state of Texas would be severely impacted if a Category 3-type hurricane were to hit heavily populated areas of the Texas Gulf Coast.
IIAT unveiled the study Jan. 31 at a press conference at the Capitol in Austin. Concerned about the effect of a catastrophic coastal storm on the Texas economy and insurance markets in the state, IIAT commissioned the study to accurately assess Gulf Coast contributions to the overall Texas economy.
Nobel Prize nominated economist Ray Perryman conducted the study, “An Economy at Risk: Our Vulnerable Coast and Its Importance to the Texas Economy.” Perryman found, among other things, that if a storm of the magnitude of Hurricane Katrina were to strike the Houston-Galveston area, it could immediately cause billions of dollars in losses to the state’s budget and some 600,000 – 800,00 lost jobs.
The IIAT says the study’s results underscore the need to revamp the funding structure of the Texas Windstorm Insurance Association, the insurer of last resort for windstorm insurance for homes and businesses in 14 coastal counties. It’s been estimated that if a Category 3 storm were to hit the Galveston-Houston area, TWIA could see losses in the $5 billion to $6 billion range, an amount to which it is not prepared to respond under its current funding structure. After about the $1 billion mark, property/casualty insurance companies that operate in the state would be hit with unlimited assessments to cover the remaining losses. Those insurers could then recover the amount of those assessments through premium tax credits, which could in effect remove about $5 billion from the state’s operating budget over the course of several years.
At a luncheon following IIAT’s press conference Perryman explained that the Gulf Coast region represents about 30 percent of the state’s economy. But, he said, the real issue is, “what does that mean to folks in Amarillo? What does that mean to folks in Odessa or Waco?”
Perryman said he decided to look at three coastal industries: shipping, petrochemical and petroleum refining. He said what goes in and out of the Port of Houston includes not only agricultural products produced in the state but virtually everything that comes and goes in containers. Texas is the number one exporting state in the country right now, exporting about $1 billion worth of goods every year.
As for the refined petroleum and petrochemical industries, “Almost everything we do uses those products,” Perryman said. “… Refined petroleum and petrochemicals cut across the entire economy and cut a big swath. … In some regions of the state, as much as 50 percent of their output is dependent on just those two things.”
He said that if a Katrina-type storm hit the Gulf Coast area the state could lose some $50 billion a year in output over a couple of years and 600,000 jobs at the low end. If it the Port of Houston directly, the numbers rise to about $70 billion and around 850,000 jobs. The state’s budget would immediately lose a couple of billion per year for at least two years, he said, not counting the losses in premium tax if insurers were take advantage of available tax credits.
“This is the first study of its kind that clearly demonstrates the interdependent economic links between the coast and the rest of the state,” Robert Hempkins, IIAT president, announcing release of the study.
At the press conference, Hempkins related comments made by Gov. Rick Perry in reference to the study: “This study by the Independent Insurance Agents of Texas demonstrates how important our coast is to the entire Texas economy. … “We must be prepared for the mega-storms predicted over the next several years, which could strike the Texas coast and threaten the safety and well-being of residents, commerce and industry – not only on the coast, but also throughout Texas.”
David VanDelinder, IIAT executive director, pointed to several of the study’s key findings. “This data and these facts can no longer be ignored,” said VanDelinder.
“Although only a quarter of our state residents live in Gulf Coast counties, they produce more than 30 percent of our state’s annual economic output. Even more important is the influence the coast has on the rest of the state. The IIAT study finds that 40 percent of Texas jobs are tied directly to production along the coast and 44 percent of the state’s total income is linked to key Gulf Coast sectors.
“That’s why the total economic impact of a major storm along our coast is estimated to be much greater than simply the property damage that would occur,” said VanDelinder.
The study results can be found online at iiat.org > Press Center.
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