Wind pool could lose funding mechanism without legislative action

A critical funding mechanism for the so-called wind pool will expire in July unless lawmakers extend it.

The House and Senate Insurance committees conducted a two-day series of hearings Tuesday and Wednesday and took up on Tuesday the wind pool's finances and ability to cover claims in the event of a catastrophic hurricane like Ida that struck southeast Louisiana earlier this month.

One of the largest funding sources for the wind pool is a 3 percent fee assessed on policies provided by surplus lines insurance companies, which provide policies for clients with a financial risk too high for normal insurers. This fee has a repealer on it, which means it is set to expire unless lawmakers specifically reauthorize it. According to lawmakers, revenue from the fee adds up to about $18 million to $19 million annually.

The Mississippi Windstorm Underwriting Association, better known as the wind pool, is a non-profit corporation that is the insurer of last resort for those needing wind and hail policies in the six coastal counties (Harrison, Jackson, Pearl River, Stone and George). It has issued 13,300 policies for a $2.35 billion total insured value, down from a post-Katrina high of 46,406 policies worth $7.24 billion in 2011.

According to MWUA executive director Joe Shumaker, Hurricane Zeta that made landfall in New Orleans and on the Mississippi Gulf Coast last October cost the association about $35 million in claims, a loss he said was easily covered by the fund. In addition to its reserves built up in years without claims, the MWUA buys reinsurance which covers insurance providers like the MWUA in the case of a catastrophic loss.

"What we're worried about is another Katrina or Camille," Shumaker said. "Not only do you have to think about the next big storm or Katrina 2, but what happens for multiple medium-sized events."

Tom Quaka, who retired from FCCI Insurance and is now part of a consultancy group, Southern Insurance Consulting, told the joint committee that reinsurance market has been reasonably stable over the last several years. On $450 million of reinsurance like that carried by the MWUA, the premium can be $19.5 million, but in some years, Quaka said that figure can soar to $40 million if there were a lot of natural disasters and resultant claims.

Surplus line carriers that pay the three percent fee are known as non-admitted companies since they don't sign up to be licensed by the state, which created a fund managed by the carriers designed to cover claims if a member insurer is liquidated by a court after catastrophic natural disaster and the resultant avalanche of claims.

This guaranty fund is only available to admitted insurers and covers losses up to $250 million.

The MWUA has two kinds of plans, Fair Access to Insurance Requirements (FAIR) and Beach plans. FAIR plans were established by the federal government in the 1960s for home plans in high wind damage risk areas. The Beach plans covered properties that the voluntary insurance market won't write due to the risk and Mississippi is one of several states with these plans, as do Louisiana, Alabama, Texas, Florida, North Carolina and South Carolina.

There are 33 states with similar insurance pools acting as an insurer of last resort.

After Hurricane Katrina in 2000 wiped out 60 years of the wind pool's financial reserves, lawmakers passed House Bill 1500 that was signed into law by then-Gov. Haley Barbour in 2007. This bill incorporated the MWUA as a private, non-profit enterprise.