Two Texas lawmakers are ready to offer legislation backed by coastal windstorm officials to provide the Texas Windstorm Insurance Association with long-term funding that would allow it to generate enough money to pay claims from the most severe storms.
TWIA is a nonprofit insurer of last resort providing wind and hail insurance for coastal area residents in the event of a catastrophic loss. It has been in a difficult financial situation resulting mostly from new claims and lawsuits dating back to Hurricane Ike in 2008. TWIA was given authority to access $2 billion in bonds and $500 million in assessments, but was told in 2012 that it could only place $500 million of the first $1 billion in bonds, leaving TWIA with a $2 billion capacity and $350 million in reserves and cash, well below the estimated $4.5 billion cost of a single 100-year storm.
TWIA windstorm rates in its 14-county coastal region have increased 48% since 2005. Texas Insurance Commissioner Eleanor Kitzman has said TWIA's financial condition is such that any reform would likely have to generate funding beyond the rate revenue created in the current 14-county coastal region, which includes Houston (Best's News Service, Sept. 19, 2012). She said during the National Association of Insurance Commissioners' meeting in December that she expects multiple proposals of all kinds to be offered when the biennial legislative session starts.
A Coastal Windstorm Task Force formed in 2012 to address the issue has drafted legislation that is in the final stages of preparation. Democrat Sen. Juan Hinojosa and Rep. Todd Hunter, a Democrat, are expected to offer the plan in bill form sometime during the week of Jan. 7, said Charlie Zahn, a Port Aransas, Texas, attorney who chairs the task force. Zahn said Hunter probably will offer essentially the same legislation, but in two bills rather than the single one Hinojosa is expected to offer.
Desiree Castro, a policy analyst in Hinojosa's office, said the two primary goals for the bills will be to increase windstorm insurance availability and to create a more-solvent TWIA. She said the bills contain plans to create $7 billion in combined funding and bonds, enough to cover a 250-year storm, $1 billion going to fund a Catastrophic Reserve Trust Fund and the remainder to be generated from bonds. She said the Task Force funding would be financed partly by using a surcharge covering policyholders in the 14 coastal counties, while bond funding would cover three levels, including one that would place charges on consumers statewide in the event of an extreme storm.
Task force draft documents outlining the plan show that getting more capital into the trust fund as part of the bill would involve creation of several separate funding streams operating over several years, with a goal of getting $1.1 billion into the fund by 2014.
Trust fund accumulation would be handled in one of two ways, the documents show. For instances in which the fund is less than 1.5% of TWIA exposure, Zahn said more than $200 million of TWIA's $400 million would be placed into the trust fund. Another $100 million would be generated through an assessment of the insurance industry and an additional $90 million would be generated through a 3.9% assessment on policyholders in the current TWIA counties. "When we started this, we were absolutely against an assessment on policyholders on the coast, Zahn said, but said such an assessment would be necessary for the full plan to clear the House. Finally, a TWIA annual surplus of anywhere from zero to $160 million would go the trust fund. But in instances where the trust fund is greater than 1.5% of TWIA exposure, a direct TWIA payment formula would be used to generate trust fund money.
Zahn said the increase in trust fund reserves should embolden banks to feel more comfortable providing TWIA with bonds to cover disasters.
Joe Woods, the Property and Casualty Insurance Association of America's vice president for state government relations, said the proposal lacked detail and was not optimistic about its chances of ultimate passage. Between bonds and trust fund contributions, the insurance industry could be paying more than $1.5 billion into the program, which would be a heavy load for insurers if a major storm hits one of the coastal metro areas. He said other negatives in the plan include no purchase of reinsurance and its reliance on the use of improved building codes to bring down rates. Ultimately, he said, the bill appears to be one that would cap rates, while trying to have insurers and the remainder of the state pay as much as they can.
While Zahn expects the Hinojosa and Hunter bills to be the primary vehicle to repair TWIA finances, it could be joined by at least two others, he said. One of those has been crafted by public members of a Texas Joint Interim Seacoast Committee to Study Seacoast Territory Insurance that would phase out the Texas Windstorm Insurance Program over several years in favor of an assigned risk plan. Zahn said insurance industry officials would almost certainly reject such a plan. An attempt to gain comment from the Property Casualty Insurers Association of America for this story was unsuccessful.
The top five writers of homeowners' multiperil insurance in Texas during 2011 were State Farm Group with a 27.89% market share; Allstate Insurance Group with 12.34%; Farmers Insurance Group with 12.00%; USAA Group with 8.15% and Liberty Mutual Insurance Companies with 6.03%, according to BestLink.