The state's last-resort insurer for wind storms isn't solvent by most insurance company standards and would find it hard to pay claims if faced with a major storm, Texas Insurance Commissioner Eleanor Kitzman told lawmakers Thursday.Lawmakers expressed concern about Texas' entire economy if coastal residents are left in the lurch. One said part of the answer is to assess a small amount on insurance policies statewide if there's a weather catastrophe.
The Texas Windstorm Insurance Association, or TWIA, “has the money to continue to operate on a day-to-day basis. ... But by any other kind of insurance company standard, it is not solvent, and it would have difficulty paying claims if there were a major event,” Kitzman told the Joint Committee on Oversight of Windstorm Insurance.
She, like some other leaders and lawmakers, cited the ongoing expense of claims — particularly those in litigation — from Hurricane Ike in 2008.
“Depending on what happens with this ongoing litigation that they just don't seem to be able to get in front of, I don't know, we have not done the projection to see when it would be that they would run out of cash,” said Kitzman, whose agency has administrative oversight of TWIA because of a troubled administrative and financial past. “But at some point, they just won't be able to do it if claims continue as they are.”
The association has a reserve trust fund with about $175 million in it, plans to add an additional $25 million, and has authority to issue bonds.
John Polak, TWIA general manager, said the association is funded to cover an event up to $3.5 billion, assuming it can sell all the bonds it's authorized to issue. That's about $1 billion more than Ike, he said. But some lawmakers said TWIA's ability to sell all those bonds is in question.
The association has raised rates on TWIA customers, but state Rep. Larry Taylor of Friendswood, co-chairman of the oversight committee and Republican nominee to the Texas Senate, said premiums through the association now total $400 million.
“We could double the premiums ... that's $800 million. You're still not covering the multibillion-dollar loss. And there's no way for that little sliver to ever cover that loss,” Taylor said.
“There has to be some spread of the risk, which is the way they pay for hailstorms,” he said, suggesting there could be a “fraction of 1 percent” assessment statewide to help pay off a loss if there were a catastrophic storm.
“It's not going to affect anybody's quality of life,” Taylor said.
Rep. John Smithee, an Amarillo Republican who is House Insurance Committee chairman and serves on the oversight committee, asked Polak, “Are we telling people before they buy these policies ... if you do have a claim, we may not have the money?”
Polak said customers are not so informed. Taylor said issuing such notices would be “a crushing blow to the economy” because banks then couldn't give loans to those insured with TWIA policies.
Polak said nothing in current legislation requires the state to subsidize TWIA.
But Sen. John Carona, R-Dallas, co-chairman of the oversight committee and chairman of the Senate Business and Commerce Committee, said the state would step up if necessary.
“Whether we have a legal responsibility relative to TWIA, we darn sure have a moral responsibility,” he said.