Mississippi lawmakers have agreed upon a plan to use $20 million in premium taxes on policies statewide to help lower premiums for property owners in high-risk areas who are insured by the state’s wind pool.
The plan hashed out between the House and Senate would begin this year and run until 2010, totaling $80 million. The plan includes provisions for insurer assessments and reimbursements in the event a major storm drains the high-risk pool’s reserves and tax incentives to encourage insurers to write more coastal policies on their own.
Legislative researchers estimate the relief plan could lower annual premiums by as much as $500 a year. Since Hurricane Katrina struck Aug. 29, 2005, the wind pool’s rates have jumped 268 percent for businesses and 90 percent for homeowners.
Mississippi House Bill 1500 creates a special fund (Mississippi Windstorm Underwriting Association Reinsurance Assistance Fund) that the Mississippi Windstorm Underwriting Association, known as the wind pool, would be able to access to cover costs as necessary. The fund would be allowed to accumulate reserves up to $50 million; any amount over that would be sent to the state’s general treasury.
The wind pool association is the insurer of last resort in the six southernmost counties. The losses of the wind pool are borne by all property insurers writing in the state.
The bill also authorizes the wind pool to levy regular assessments against the wind pool association’s insurers if a storm produces losses in excess of funds immediately available to the association. The annual total of regular assessments could not exceed the greater of 10 percent of the deficit or 10 percent of the aggregate statewide direct written premiums for property insurance.
However the plan also includes a provision to later reimburse insurers if they are assessed for excess storm losses. The insurance commissioner would be able to initiate a surcharge to recover the indebtedness of the association to insurers.
The bill calls for the wind pool to provide financial incentives or financial penalties, or both, to encourage insurers to write property insurance in the coastal areas. It grants insurers a tax credit up to $100,000 per calendar year against premium taxes for writing new wind and hail policies in coastal communities of the state.
Wind pool policies would be sold with a two percent deductible or a 20 percent deductible with appropriate rate reductions and the pool could offer other deductibles as long as rates reflected the change in deductible.
Mississippi Insurance Commissioner George Dale said he anticipates a speedy signing for the bill once it hits the governor’s desk.
“To me, the most important part of the bill is that the wind pool will be allowed to accumulate reserves,” Dale said. “If we go three years without a storm, that will decrease the need for reinsurance and the savings can be passed along to consumers.”
Dale said the new bill allows more flexibility for insurers in regard to building structure requirements and “innovativeness of policies.”
“This is the most important economic development bill of the legislative session,” Dale said.
Debbie Shempert, president of Independent Insurance Agents of Mississippi, said her organization is “very pleased at how the House and Senate have come together on this legislation to help stabilize the market place.”
“An important issue we were following is the make-up of the wind pool board,” Shempert said. “We wanted there to be insurance agents on the board – we just didn’t want to go backwards.”
The bill revises the membership of the association board of directors. The new membership consists of the state treasurer; five representatives of assessable insurer companies; three agents with at least 10 years’ experience in the property and casualty industry – two coastal residents and one who is not a resident of the coast area; and two business leaders who have been residents of the coast area for at least 10 years and who have at least 10 years’ experience in management of a business.
“This is basically the same as it was before,” Shempert said. “It’s as good as or better than we could have hoped for.”
Insurers joined agents in welcoming the legislation.
“This is important legislation for Mississippi and for insurers,” said Cecil Pearce, Southeast vice president for the American Insurance Association. “We applaud the state’s political leadership, including Gov. Haley Barbour, Insurance Commissioner George Dale, and legislative leaders, who showed a strong commitment to this legislation, and who worked with AIA to craft a solid reform package.”
Unrelated to the bill but pertinent to coastal wind insurance assistance, Gov. Haley Barbour received a letter of approval Wednesday to transfer $30 million of Housing and Urban Development money into the wind pool for commercial property insurance relief. The money is a one-time allocation.
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