Texas’ exposure to coastal storms continues to grow

This blog recently looked at how insurers' awareness of the risk posed by storm surges has increased in the wake of destructive hurricanes such as Katrina, Ike and Sandy. Hurricane Ike, which made landfall in Galveston, Texas, remains the costliest tropical storm in the state's history.

Ike and other storms during the 2008 hurricane season proved devastating to the Texas Windstorm Insurance Association (TWIA), a state-run insurer of last resort for coastal residents without alternative insurance options. As we recently discussed, TWIA has been struggling to stabilize its finances while handling residual claims and lawsuits in the years since Hurricane Ike.

However, it has proven difficult to reform the coastal insurance system in a way that is both financially sustainable and acceptable to property owners, leaving an uneasy status quo in place. Meanwhile, Texas' exposure to coastal storms and flooding has continued to increase, according to Robert Hartwig, president of the Insurance Information Institute (I.I.I.).

In an interview with Claims Journal, Hartwig noted that "if Ike were to occur today it would produce substantially more in insured losses than it did five years ago." The I.I.I. president called this a "lesson that has not been learned…a lesson for communities and states which continue to allow a significant amount of building in sensitive areas or vulnerable areas that are likely to be hit by hurricanes."

Hartwig explained that coastal exposure is particularly important issue in Texas, where the value of insured coastal properties increased by about a third between 2007 and 2012, reaching $1.175 trillion. In comparison, total U.S. coastal exposure increased 20 percent during the same period.

Fortunately, the models used to predict damage from hurricanes will continue to evolve as researchers develop and test new theories, allowing insurance carriers to measure and manage risk more effectively. However, to provide adequate coverage and ensure policyholder satisfaction, insurers must be able to calculate accurate valuations for all residential and commercial properties.