Record insurance losses in Texas ignite debate over state's ability to address rising risks related to climate change
Two major hurricanes that hit the Texas coastline in 2008 sent damage claims soaring, and resulted in $6.6 billion in losses for state insurers, even as the insurers collected a record-high $5.17 billion in premium revenue, according to data released by the Texas Department of Insurance (TDI). Policyholder groups are concerned that the insurance companies will exploit these record losses as a means to raise rates to policyholders. "The effect of climate change on weather patterns raises very real concerns," said Alex Winslow, executive director of the consumer group Texas Watch, "however, we believe that insurers are using the potential for climate change to increase rates more than is necessary." Consequently, one proposal currently being debated in the state legislature would require rate increases to be approved by the state insurance commissioner before they go into effect. Currently, rate increases go into effect as soon as insurers file a notice with TDI and can only be challenged after the fact.
In recent years, Texas insurers have been able to raise rates based upon findings from controversial near-term catastrophe models, which emphasize increased frequency and severity of hurricanes when predicting damage to homes and businesses. Near term models can result in higher premiums. In contrast, consumer groups want to require insurance companies to justify any future rate increases based upon more traditional models that consider a picture that is more diluted, for example, the number of storms occurring over the last century or so.
Damage claims caused principally by hurricanes Ike and Dolly ended a five-year streak of profits for the insurance industry and underscores the uncertainty that insurers and state regulators face when setting rates during a time of extreme weather patterns. The debate playing out in Texas is just one example of the tough decisions that state regulators, insurers and businesses will have to grapple with as they consider policies and regulations to address the potential impact of climate change liability.
