Overview And Update On Wind Pool Expansion In South Carolina

Earlier this year, South Carolina passed new legislation revising the system for providing windstorm insurance in the state.  The new legislation is an effort to provide relief for some coastal home owners faced with exponentially increasing insurance premiums by impacting the private insurance market in such a way as to make insurance more affordable in the state. 

Although Hurricane Katrina did not hit South Carolina, since the hurricane season of 2005, a number of private insurance companies have stopped writing policies or have significantly increased the premiums for coverage for wind damage in hurricane-prone areas, prompting state governments to become more involved.  Note that hurricane wind insurance is different from flood insurance, which generally includes water damage from hurricanes.  Flood insurance is sponsored and funded through the federal government’s National Flood Insurance Program (NFIP), although there are some private companies that write private flood insurance policies.  Nevertheless, while the federal government does not provide wind coverage on a large scale as with the NFIP, many coastal states, including South Carolina, have developed some form of state-sponsored program to provide wind insurance in high risk areas.   

South Carolina’s state-sponsored program is the South Carolina Wind and Hail Underwriting Association (SCWHUA), often referred to as the “wind pool.”  In June 2007, the South Carolina General Assembly passed and the Governor signed the Omnibus Coastal Property Insurance Reform Act of 2007 (the Act), which increased the area covered by the state’s wind pool.  The Act also increased the overall rates for wind pool coverage; introduced several tax credits to help individuals purchase windstorm insurance policies in the private market; and created tax subsidies to incentivize private companies to write full coverage wind insurance in the state. 

            The boundaries of the wind pool were increased from what they had been since 1971 to include an area that matches the state’s population patterns and mirrors actual wind risk.  The rates charged to those who purchase policies through the wind pool also increased: the state’s wind pool is designed to be a market of last resort when businesses or individuals cannot get coverage elsewhere in the regular, competitive insurance market.  Keeping the state wind pool rates higher than those found in the private market is intended to provide a competitive incentive for private companies to come back into the market.  As an additional incentive to private insurance companies, the new legislation gives certain tax credits to private insurance companies who issue full coverage within the expanded wind pool.

            As for assisting the home or business owners, the Act establishes a grant program to promote the retrofitting of homes and small businesses, though it does not appear that any grants have been awarded yet.  Finally, there are changes to the state’s tax code, creating tax-free savings accounts to save against hurricane catastrophes; certain tax credits for purchasers of wind insurance coverage; and sales tax credits for materials purchased for retrofitting.    

            All of the changes in the new legislation are designed to encourage competition in the market, lead to risk-based pricing, and make it easier to afford insurance coverage.   However, it is too early to tell what, if any, impact these changes will have for home and business owners in the area.  For example, some of the implementing regulations for the tax savings have yet to be issued, so their impact cannot now be determined.  Nevertheless, in an effort to monitor the efficacy of the Act, on October 5, 2007, the South Carolina Department of Insurance issued a Data Call to all insurance providers in the new wind pool area to report the number of policies they issued with and without wind coverage.  The information is to be provided on a quarterly basis.  When the first data is submitted, it will be a helpful tool to assess the impact on businesses in the area.