The Galveston County Daily News

If Galveston residents want to protect their wallets, they should take a close look at what’s going on in Austin. In a decision announced in October, Insurance Commissioner Mike Geeslin decided to stick state residents with billions of dollars in new taxes and higher insurance premiums.

The risk to Texas taxpayers stems from the obscure Texas Wind Insurance Association, a state-mandated entity theoretically intended to help coastal Texans unable to find a private insurer to cover their homes.

Before last year’s Hurricane Ike, TWIA had some money in the bank and private reinsurance (insurance for insurance companies) to help it deal with a catastrophe. Although industry insiders thought TWIA had begun to displace some parts of the private market because its government-set prices were lower than those in the private market, few made a fuss. When Ike hit, however, all this changed: TWIA spent every penny it had saved during more than 20 years and imposed sizable taxes on every private insurer in the state.

Seeing that TWIA could collapse entirely if the wind blew again, the Texas Legislature — at Gov. Rick Perry’s insistence — found a short-term Band-Aid. Rather than imposing even higher taxes immediately if another Ike-like storm batters Texas, TWIA now can issue bonds to help it survive. These bonds, ultimately backed by Texas taxpayers, will have to be paid off, but they do provide breathing room.

Making the bond plan work, however, requires that TWIA get itself on firm footing so it can actually pay off any bonds and rebuild its reserves. The best way to do this is to raise its own rates and encourage private insurers to enter the state. TWIA’s board, earlier in the year, asked for a modest 10 percent rate increase.

Last month, however, Geeslin denied the rate increase. While this may save a few dollars for those who live on the coast, and maybe deliver some votes to Perry, the decision means coastal Texans will save a little money now while those inland will pay a lot more later.

As a result of Geeslin’s decision, TWIA has the ability to issue huge debts that taxpayers will have to pay back but no reasonable way to cover them in the short term.

This combination has proved dangerous elsewhere. Florida’s mechanism for dealing with high-risk coastal properties has similar bonding ability to the tune of more than $25 billion, but has only about $4 billion in hard assets to pay for it.

Texas has started down the same road. A third of all the state’s private insurers have fled since 1995. Texas taxpayers already face a liability of $1 billion and, if things don’t change, the potential liability only will increase.

Change makes sense. Geeslin should do the right thing and let TWIA’s rates go up. If the changes really strain lower-income coastal residents, the state should consider efforts to provide tax credits and other help so they can better reinforce their homes. A well-reinforced home can qualify for private market rates 40 percent lower than one with ordinary construction.

Likewise, the state should work to end any subsidies — from TWIA or otherwise — that encourage development in the most hurricane-prone areas.

Some Texas residents may have to pay more, particularly if they live in high-risk areas. But the alternative, billions of dollars in new expenses for inland Texans, is a lot worse.

Eli Lehrer is a senior fellow at the Competitive Enterprise Institute, where he directs the Center for Risk, Regulation and Markets.