We're all going to pay for the state wind pool's $4.2 billion tab from Hurricane Ike.

The Texas Windstorm Insurance Association, created by the state Legislature to sell windstorm coverage to those who can't find it in the private market, only has $2.1 billion available to pay for a claims estimated at twice that amount.

That means it will likely make up the difference by turning to private insurance companies, who will pass the costs on to property owners from Amarillo to Galveston.

"Rates are going to go up," said state Rep. Craig Eiland, D-Galveston, and a member of the House Insurance Committee. "But the immediate need is making sure people have the opportunity to file their claims."

TWIA has 142,566 policies and $42 billion in exposure in the Texas counties most affected by Ike: Jefferson, Chambers, Galveston, Harris, Brazoria and Matagorda.

A 10 percent hit across those counties would mean a $4.2 billion loss to TWIA, Jim Oliver, the association's executive director, said at an association board meeting Wednesday.

"It could go higher and a lot lower, so asking for $2.1 billion is certainly not outrageous," he said as he requested permission from the board to tap out the association's funding.

TWIA has $2.1 billion it can draw on from a $370 million reserve fund, charges against private insurers and reinsurance, the coverage it buys to help pay for catastrophes.

The association has so far received 23,000 claims.

At Wednesday's meeting, board members voted to raise $430 million by assessing private companies, $200 million of which will be used to pay premiums to keep the association's reinsurance in effect.

Companies can take incremental state tax credits each year to recover the charges after paying the first $200 million.

"TWIA is wiped out. It's naked," said Rep. John Smithee, R-Amarillo, chairman of the House Insurance Committee. "I think it's pretty clear there could be more assessments."

Coast deemed risky area
The latest one follows $100 million paid by the industry for Hurricane Dolly-related losses.

The amount companies pay is a function of how much business they do statewide and on the coast, an area deemed risky by companies because of potential hurricanes. Those that sell more policies on the coast pay less than those that don't.

Some insurers will use their reinsurance to pay for the assessments. That will likely cause the cost of that coverage to jump, and insurers will pass that on to customers.

"The initial impact will be borne by reinsurers, but ultimately that comes back on us because the cost of reinsurance in the future will go up," said Parker Rush, CEO of Dallas-based Republic Group.

Insurance Commissioner Mike Geeslin said companies should be prepared for the assessments, but he wouldn't be surprised to see higher rates.

"Our job as regulators is to make sure the rate changes are justified," he said. "Right now our focus is on getting claims paid."

If higher rates weren't enough, coastal property owners may also see a dwindling number of providers to choose from if some insurers decide to pull out of the market.

"One of my big concerns is people who are 30 to 50 miles off the coast are going to have trouble getting insurance and getting it at an affordable price," Smithee said.

If insurers pull back on wind coverage, the state may need to create a new agency to sell coverage in counties once removed from the coast, such as Harris, said Smithee, who has twice tried unsuccessfully to reform the wind pool's finances.

To encourage insurers to stay on the coast, the state's insurance commissioner recently increased the potential costs to those who don't sell there. He did that by removing their assessment caps.

"His logic was very sound to encourage carriers to write voluntarily on the coast, so they wouldn't be faced with a big bill from the pool," Rush said.

Wind versus storm surge
Companies will still have to weigh that against higher reinsurance costs for the risk they face from hurricanes, he said.

How much TWIA needs to raise through assessments could depend greatly on how many claims are for damages caused by wind versus storm surge, Oliver said.

Some argue that surge is caused by wind, and the resulting damage should be covered under windstorm insurance.

But insurers have typically said damage from rising water caused by storm surge is flooding and covered by the National Flood Insurance Program.

Only about 20 percent of TWIA's 110,000 policyholders in Galveston County have flood insurance, so the practice will likely be contested.

The issue was debated after Hurricane Katrina struck New Orleans, but federal courts in Louisiana and Mississippi have ruled in favor of the industry.