9-21-05 - With Hurricane Rita barreling through the Gulf of Mexico toward Texas, homeowners and property insurers are bracing for potentially billions of dollars in damages.
Texas homeowners already pay the highest premiums in the country, and a direct hit from a Category 4 storm could affect prices statewide as insurance companies write checks to cover their losses.
Jerry Johns, president of the industry trade group Southwestern Insurance Information Service, said a "worst-case" scenario of Rita slamming into Galveston and Houston could cause billions in losses.
"Rates are based on losses. Assuming they are astronomic, rates could be impacted," Johns said.
Most insurance companies don't write policies in coastal communities. Those are covered by the Texas Windstorm Insurance Association, an insurer of last resort created by the Legislature in 1971 after Hurricane Celia caused about $350 million in damage. That figure is estimated at up to $1.8 billion when adjusted for 2005 dollars, Johns said.
The windstorm association is the primary insurer for coastal property in 14 Gulf coast counties and a sliver of Harris County, with about $25 billion in policies.
But the storm is likely to continue causing damage inland, either with strong winds, heavy rains, flooding or spinoff tornadoes. Flooding from heavy rains in Tropical Storm Allison in 2001 caused about $1.2 billion in insured damage, according the Southwestern Insurance Information Service.
Texas Department of Insurance spokesman Jim Hurley said Rita's potential impact on rates will depend on the amount of damage, which state officials declined to estimate before the storm.
Insurance companies already have a "catastrophe load" built into their policies, which sets aside a percentage of the premium to pay for catastrophic events, Hurley said.
"It depends on what kind of damage, but if they have been reserving enough," there should be money to cover damages, Hurley said.
Hurley said state officials will be working with insurance companies to make sure they get representatives into affected areas quickly to work with homeowners who suffer damage.
"They need to be ready to step up and do what they're supposed to do," Hurley said.