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Study shows Texas economy vulnerable to Cat 3-sized coastal storm

A study commissioned by the Independent Insurance Agents of Texas (IIAT) shows that the economy of the entire state of Texas would be severely impacted if a Category 3-type hurricane were to hit heavily populated areas of the Texas Gulf Coast.

IIAT unveiled the study, “An Economy at Risk: Our Vulnerable Coast and Its Importance to the Texas Economy,” Jan. 31 at a press conference at the state Capitol in Austin. Nobel Prize nominated economist Ray Perryman, who was commissioned by IIAT to conduct the study, found that if a storm like Hurricane Katrina were to strike the Houston-Galveston area, it could cause billions of dollars in losses to the state’s budget and at least 600,000 lost jobs.

The IIAT says the results underscore the need to revamp the funding structure of the Texas Windstorm Insurance Associa-tion, the insurer of last resort for windstorm coverage for homes and businesses in 14 coastal counties. It’s been estimated that if a Category 3 storm were to hit the Houston-Galveston area, TWIA could see losses in the $5 billion to $6 billion range, an amount to which currently it is not prepared to respond. After about the $1 billion mark, property/casualty insurance companies that operate in the state would be hit with unlimited assessments to cover the remaining losses. Those insurers could then recover the assessment amounts through premium tax credits, which could remove about $5 billion from the state’s operating budget over the course of several years.

At a luncheon following IIAT’s press conference Perryman explained that the Gulf Coast region represents about 30 percent of the state’s economy. But, he said, the real issue is, “what does that mean to folks in Amarillo? What does that mean to folks in Odessa or Waco?”

Perryman said he looked at three coastal industries: shipping, petrochemical and petroleum refining. He said Texas is the number one exporting state in the U.S. right now, exporting about $1 billion worth of goods every year. What goes in and out of the Port of Houston includes not only agricultural products produced in the state but virtually everything that comes and goes in containers, he said.

As for the refined petroleum and petrochemical industries, “Almost everything we do uses those products,” Perryman said. “Refined petroleum and petrochemicals cut across the entire economy and cut a big swath. In some regions of the state, as much as 50 percent of their output is dependent on just those two things.”

He said if a Cat 3 storm hit the Gulf Coast area the state could lose some $50 billion a year in output over a couple of years and 600,000 jobs at the low end. If it hit the Port of Houston directly, the numbers rise to about $70 billion and some 850,000 jobs. The state’s budget would immediately lose a couple of billion per year for at least two years, he said, not counting the losses in premium tax if insurers were take advantage of available tax credits.

State Representatives John Smithee, Amarillo, who chairs the House Insurance Committee, and Craig Eiland, Galveston, a committee member, support the development of legislation to establish a mechanism to bulk up TWIA’s funding.

At the IIAT luncheon, Smithee said people often ask him why he cares about hurricanes since his district is some 600-700 miles from the coast. “It’s a big issue,” Smithee said, “because a hurricane like that could, in my view, collapse our entire insurance industry in the state, all over the state, unless we’re prepared to deal with it.” He said he hopes this legislative session will be one in which “we finally … develop a system that’s up to date and that can handle a Katrina or even a Rita type hurricane that hits a real vulnerable area like Gal-veston Island or up the Houston Ship Channel or Corpus Christi.”

Eiland said there is a misconception that “coastal exposure is just a bunch of million dollar beach houses in Galveston, Bra-zoria and South Padre, and those people just choose to live there.”

He said he counters that argument by explaining there are “not many shrimpers from Dallas, not many people that work on offshore rigs from Texarkana. There’s a reason that 10 percent of the refining capacity in the country is in my district. That’s because the ships and barges can get there. People live there so they can work there. That’s why it devastates local economies when some companies, like State Farm and Nationwide, say, ‘we are not going to write with a half mile of a major body of water.’ Not, ‘we’re not going to write windstorm insurance,’ not, ‘we’re not going to write flood insurance.’ They have said ‘we are not going to write any homeowners property insurance.'”

At the press conference, Robert Hempkins, IIAT president, related comments made by Gov. Rick Perry: “This study by the Independent Insurance Agents of Texas demonstrates how important our coast is to the entire Texas economy. We must be prepared for the mega-storms predicted over the next several years, which could strike the Texas coast and threaten the safety and well-being of residents, commerce and industry – not only on the coast, but also throughout Texas.”

The study can be found at www.iiat.org > Press Center.

Topics Catastrophe Texas Hurricane