Legislation that would have provided more financial stability to the Texas Windstorm Insurance Association has stalled in the state Senate, leaving many in the insurance industry which would have been relied upon to cover a significant portion of TWIAs losses relieved.
Senators did not take a vote that would have brought SB 1700 up for consideration after supporters realized they lacked the two-thirds majority needed, said Joe Woods, vice president of state government relations at the Property Casualty Insurers Association of America. Not passing it was better than passing it, he said. We want to fix the problem, but we don't want to put a fix in there that is bad public policy.
The failed effort came just days before the biennial legislative session ends and is the latest turn of events in a search for a solution for TWIAs financial difficulties. The 2013 session started with several possibilities for legislation, but SB 1700, sponsored by Sen. Larry Taylor, became the primary vehicle. It would have changed TWIAs name to the Texas Residual Insurance Plan. Also, it would have charged insurers with a $1 billion assessment that likely would have been passed on to policyholders statewide, and forced the industry to buy another $200 million in reinsurance.
Woods said the bill did not address TWIAs rate inadequacy and the mechanism proposed to reduce the number of TWIA policyholders lacked incentive for policyholders to enter the private market. Woods told Bests News Service the plan to reduce TRIP exposure through depopulation would have been financed using a $200 million fine against any private companies that had not taken out their proportion of TRIP policies.
The bills demise was a positive event for the industry, said Insurance Council of Texas spokesman Mark Hanna. SB 1700 would have created a new funding scheme that put great pressure on the insurance industry. He said that if a storm the size of Hurricane Ike which resulted in $12 billion in losses were to hit in the future, insurers would have to pay their own claims and most of those belonging to TRIP.
Woods said the bill represented a large subsidy to coastal areas at the expense of insurers and ratepayers in the rest of the state. We thought they had that backward, Woods said, arguing that states bonds and coastal residents who need to be covered by storms should have been the first choice as a funding source.
With hurricane season near, the Senates failure to act raises questions about what would happen to TWIA in the event a large storm hits the coastal areas. TWIA could raise as much as $2.5 billion using Catastrophic Reserve Trust Fund money, spring premiums, a pre-bond guaranteed loan and other bond funding to cover a smaller storm, Woods said. But if any 50-year or 100-year storm hit the coastal areas, there would be no mechanism to pay claims, he said.
Hanna said there is a bonding system in place for coastal areas in the event of a major storm, but said whether it would prove enough to cover losses from the worst hurricanes is certainly debatable.
Placing a surcharge on property insurance, commercial and personal auto policies to fund the first level of bonding would have been an easy fix in PCIs eyes, but lawmakers opted for the insurance industry assessment as a first step. Such a move would hit policyholders statewide before relying on the coastal residents who are most affected. The pieces were in the wrong order, Woods said.
Hanna and Woods said there is talk about a special session this summer on other legislative topics. Normally, Woods said, a deal has to be all but finalized before it is allowed to be taken up during a special session.
A leading supporter of the bill, Foster Edwards, chief executive officer and president of the Corpus Christi Chamber of Commerce, told local media backers that efforts to reform TWIA would be renewed in the future. The Texas Department of Insurance would not comment, although Commissioner Eleanor Kitzman said before the legislative session began that TWIA funding needs to be generated from beyond its 14-county coastal territory.
Woods said PCI hopes to be invited to engage in negotiations toward another TWIA reform bill, whether it is in a special legislative session or the next scheduled legislative session in 2015. Hanna said insurance industry groups felt left out of the drafting of SB 1700 and would like to play a larger role in the creation of whatever TWIA funding bill follows.