Storm Surge Not Covered in Texas Windstorm Association Policies

September 19, 2008

A Texas consumer group took issue with the state-chartered windstorm insurance association over its refusal to pay coastal residents for storm surge damage in Hurricane Ike.

The Texas Windstorm Insurance Association says it only intends to pay Gulf Coast policyholders for wind damage, not water surge damage. Association general manager Jim Oliver said on a conference call with industry representatives: “It will be our intention not to pay surge losses. Period.”

Each claim will be examined on a case-by-case basis, and no one area will be classified as damaged completely by storm surge, he said. Areas farther inland are likely to have more wind damage and less storm surge damage, Oliver added.

But Alex Winslow, executive director of the consumer group Texas Watch, contends losses from water damage should be covered because there would be no storm surge without the hurricane.

“Though this is a predictable industry attempt to deny thousands of legitimate storm surge claims, this position is ludicrous. After all, storm surge is a phenomenon peculiar to windstorms, which should be covered by windstorm insurance,” Winslow said in a memo about TWIA to state and local officials.

According to the National Hurricane Center, storm surge “is simply water that is pushed toward the shore by the force of the winds swirling around the storm. This advancing surge combines with the normal tides to create the hurricane storm tide, which can increase the mean water level 15 feet or more.”

Flood insurance must be obtained through the federal flood insurance program, said Sandra Helin, spokeswoman for TWIA and the Southwestern Insurance Information Service. She said less than 20 percent of Galveston County property owners had flood insurance policies.

Many residents felt they would be protected by the island’s 17-foot seawall, but much of the storm surge came from the bay side of the island, she said.

“We understand that people are desperate to have their losses paid for,” Helin said. “Rising water is flood.”

Winslow said storm surge in a hurricane is not the same as other flooding, such as rising water in a creek bed. He said the windstorm association’s action in the aftermath of Hurricane Ike “sets a dangerous precedent for future windstorms.”

A total dollar loss estimate for Hurricane Ike has not yet been calculated, though risk models have shown it likely will be in the billions of dollars.

The Texas Windstorm Insurance Association is the wind damage insurer of last resort for thousands of Texans in 14 counties.

The windstorm association has more than 142,000 policies in the six most affected counties: Galveston, Jefferson, Chambers, Brazoria, Harris and Matagorda, Oliver said. There is roughly $42 billion in “exposure,” or potential damage claims, in those counties.

Oliver said he expects that all policy holders in the storm “bull’s-eye” counties of Galveston, Jefferson and Chambers will request that their property be examined for damage.

The association’s $100 million base and some of its catastrophic reserve trust fund were used paying damage claims from Hurricane Dolly that hit South Padre Island earlier this summer.

To cover the anticipated losses from Hurricane Ike, the windstorm association’s board decided to tap into new layers of backup funds, including the rest of the catastrophic reserve trust fund and some reinsurance. That will give it up to $2.1 billion for claims for now.

As part of that decision, insurance companies that fund the windstorm association are going to be assessed an additional $430 million overall.

Some insurance companies balked at the suggestion that the assessment be twice that amount to allow for sufficient cash flow to cover Ike claims. They said more could be assessed in a couple of weeks, if necessary.

Later in the day, Texas Insurance Commissioner Mike Geeslin wrote a letter to Oliver directing the windstorm association board to meet again Oct. 8 to determine whether any further insurance company assessments are needed.

About half of the new $430 million assessment can by recouped by insurance companies through state tax credits. At a certain point, which has not been reached, unlimited assessments on insurance companies can kick in to supplement the fund. Those can be recouped by insurance companies through tax credits, meaning Texas taxpayers would foot the bill.

On the Net:
Texas Windstorm Insurance Association,
Southwestern Insurance Information Service,
Texas Department of Insurance,

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