As Hurricane Ike barrels over Cuba and heads toward the Gulf of Mexico, it has the potential to become the storm that insurance companies in Texas have feared most, according to the Insurance Council of Texas. As of Sept. 9, the National Hurricane Center models show the storm strengthening in the Gulf and hitting somewhere along the Texas Coast. A worst-case scenario would have it striking Galveston Island.
“The losses from a catastrophic hurricane striking Galveston and entering the Houston Ship Channel would rival Hurricanes Andrew or Katrina,” said Mark Hanna, a spokesman for the Insurance Council of Texas.
Texas Gov. Rick Perry on Sept. 8 issued a disaster declaration in response to the threat posed by Hurricane Ike to 88 Texas counties. The declaration allows the state to initiate necessary preparedness efforts, such as pre-deploying resources requested by local officials to ensure their communities are ready to respond to severe weather. Gov. Perry also requested a presidential disaster declaration for these 88 counties.
The Texas Windstorm Insurance Association (TWIA) is the insurer of last resort for wind and hail along the Texas Gulf Coast. TWIA provides nearly all of the windstorm insurance coverage for homeowners and many businesses on Galveston Island. TWIA’s insurance exposure in Galveston County amounts to more than $18 billion.
TWIA General Manager Jim Oliver said preparations are underway for Ike. “We are prepared to send up to 500 claims adjusters to any location along the Texas coast, but nobody will be ready if a Category 3 or worse hits Galveston,” Oliver said.
Texas has already been hit by Hurricane Dolly on July 23 and Tropical Storm Edouard along the upper Texas coast on August 5.
Louisiana, still cleaning up from a hit by Hurricane Gustav on Sept. 1 is also preparing for the possibility that Ike could take a more northerly turn and make landfall there. Like Perry, Louisiana Gov. Bobby Jindal has issued an emergency declaration for his state and requested a pre-landfall federal disaster declaration.
As the path of Hurricane Ike becomes more definitive, insurance companies will strategically position claims adjusters and their mobile catastrophe units near where the hurricane is expected to make landfall, the ICT said. For example if Ike does hit Texas, Travelers Insurance Company will be one of several insurers placing ads in local coastal newspapers to alert policyholders on where to call to report claims. Each insurer’s Web site will also provide information on their catastrophe response.
Progressive Insurance recommends that coastal residents who evacuate and leave cars and motorcycles behind, place those vehicles in enclosed areas for protection against the storm. They also recommend taking pictures of the vehicles prior to departure in case the vehicles are damaged or destroyed.
A windstorm insurance policy covers wind and hail damage, while a flood insurance policy pays for damage caused by rising waters. TWIA will no longer accept applications for windstorm coverage once a hurricane enters the Gulf of Mexico. A flood insurance policy becomes effective 30 days after purchase.
“Now is an opportune time for Texas coastal residents to check with their insurance agent or company to verify their coverage,” said Hanna. “Asking questions about insurance protection now can save a lot of heartache and speed up the recovery process after a storm.”
Much of the insurance industry is wrapping up claims from Hurricane Dolly that caused approximately $500 million in insured losses. TWIA has settled approximately 72 percent of their 8,000 claims, most of which occurred on South Padre Island, Port Isabel and Port Mansfield. TWIA still has 135 adjusters working Dolly claims and TWIA continues to receive about ten new claims a day.
All insurance companies that offer homeowners insurance in the state are members of TWIA. Each company is assessed a certain dollar amount that enables TWIA to pay its claims following a hurricane.
TWIA expenses from Hurricane Dolly cost insurers $100 million, while another $100 million needed to settle all of the storm’s claims will come from TWIA’s Catastrophe Reserve Trust Fund.
The expenses from TWIA claims do not include the expenses that insurance companies face from their own policyholders. For example, TWIA losses from Hurricane Rita that struck Texas in 2005 amounted to $160 million, while Texas insurers paid an additional $2.2 billion in claims.
Initial funding to pay claims from a second catastrophic hurricane this year would come from the Catastrophe Reserve Trust Fund which would have approximately $370 million remaining. It would be followed by a $200 million assessment to Texas insurers. The next step would be a gap fund of about $30 million followed by $1.5 billion in reinsurance that TWIA has purchased. Any dollar amount beyond the reinsurance would be assessed Texas insurers, who would seek reimbursement from the state’s General Revenue Fund through tax credits.
Sources: The Insurance Council of Texas, www.insurancecouncil.org; Texas Governor’s Office, governor.state.tx.us; National Hurricane Center, www.nhc.noaa.gov; Louisiana Governor’s Office, www.gov.state.la.us
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