Texas Windstorm Insurer Faces Tough Legislative Session

Texas’ property insurer of last resort in coastal counties may have a difficult time remaining intact during the 2013 legislative session.

Claims from 2008’s Hurricane Ike still trickle in and ongoing Ike-related lawsuits against the Texas Windstorm Insurance Association (TWIA) continue to hamper efforts to shore up its finances, as do legislative limits on its ability to increase funding for catastrophes.

On Feb. 26 a bill was filed by Sen. John Corona that would create the Texas Property Insurance Program, a statewide assigned risk plan to be administered by a managing general agent, and modify the operation of the FAIR Plan Association and the Texas Windstorm Insurance Association. Under Senate Bill 18, beginning Apr. 1, 2015, TWIA would cease issuing new policies for residential exposures.

Sen. Corona also filed SB 19, which addresses mitigation against property loss from natural catastrophes. Among other things, the bill would make mitigation grants “available to residential property owners in areas susceptible to windstorm, hail, wildfire, and other natural catastrophes.”

In addition to Sen. Corona’s bills, Sen. Hinojosa has filed SB 1089, which targets TWIA’s finances. The bill’s provisions include a premium surcharge to be assessed by property insurers providing coverage in first tier coastal counties to each first tier policyholder as necessary to help pay back any public securities that may have been triggered by a coastal catastrophic event. Policies subject to possible assessments include windstorm and hail policies, and all policies that cover property located in first tier counties, including automobiles.

TWIA’s 2012 re-serve for Ike claims recently grew by $150 million “for a total of $400 million in reserve increases for Ike claims just in 2012,” Texas Insurance Commissioner Eleanor Kitzman said during a Feb. 19 meeting of the association’s board of directors. “For a frame of reference, TWIA’s annual premium revenue is approximately $400 million a year. I think even those of us who aren’t good at math get this picture.”

Kitzman has previously said that TWIA’s funding structure is unsustainable and stands by that opinion today. “If TWIA were any other company it would have been shut down a long time ago,” Kitzman said. “But it’s not any other company and it was never intended to be.”

Noting that she has “taken a lot of heat” for her remarks about TWIA’s lack of sustainability, Kitzman said she doesn’t “know how else to characterize it when its exposure is increasing, its funding is capped at around $3.5 billion at best and its premium revenues are insufficient to purchase or otherwise provide adequate protection for policyholders.”

Battered by Ike

Kitzman acknowledged that TWIA was overwhelmed by Hurricane Ike. Together, the association and the FAIR plan received more than 100,000 claims.

“Approximately 60,000 of TWIA’s 92-plus thousand claims were paid and closed within six months,” Kitzman said. “Over 10,000 claims have involved attorney representation. Over 5,000 of the 10,000 involved claims that were originally paid and closed, and were reopened over 24 months after the claim was originally paid and closed. Most of those with no indication from the policyholder during the interim that there was any problem.”

More than 50 claims were filed for the first time after Sept. 13, 2012, she said.

“To date, plaintiff attorney fees are estimated at $325 million, defense attorney fees have been approximately $70 million,” Kitzman said.

A consulting firm, Alvarez & Marsal Insurance Advisory Services LLC (A&M), which was contracted by the Texas Department of Insurance to explore options for restructuring TWIA, as well as to manage Ike claims, has been has been paid around $200,000 a month, Kitzman said. The Austin American Statesman reported that the total amount paid to A&M as of late February was more than $1.5 million.

In its 2012 Biennial Report TWIA said it has around $3.1 billion available to pay claims, which according to the association would cover a 1-in-60 year event. In the report, TWIA estimated that a 1-in-100 year storm could result in losses to the association of more than $4.5 billion. At the Feb. 19 board meeting, TWIA actuary Jim Murphy said more current estimates put the cost to TWIA from a 1-in-100 year storm at $4.66 billion.

Topics Catastrophe Natural Disasters Carriers Texas Claims Windstorm Property