Alliance’s Woods Testifies Before TDI on Homeowners Crisis

In testimony before the Texas Department of Insurance (Docket No. 2535) on the departments’ plans to implement stopgap measures to help prevent a homeowners insurance market meltdown, Joe Woods, Southwest regional manager for the Alliance of American Insurers, said Texas needs “long-term systemic reform to address the cost-drivers that have brought the system to this point.”

Woods commented on recent TDI proposals to expand the Texas Windstorm Insurance Association (TWIA) beyond the coastal counties and the activation of a FAIR Plan:

“To analyze both of these proposals, it is important to note that a Market Assistance Plan (MAP) is already in place and operational. By statute, this is the intended mechanism for allowing the insurance industry to address availability issues. Both departmental proposals presuppose that the MAP either has or will prove to be inadequate. That has not been demonstrated.

“As its name implies, the TWIA was established principally for the purpose of ensuring the availability of wind coverage in the coastal areas of the state. Nevertheless, it is also authorized to write hail, fire, and explosion coverage. While the TWIA has the existing statutory authority to issue coverage for these limited perils, its does not have the authority to issue broader homeowners policies.

“The Department, and ultimately consumers, need to understand that expanding the geographic scope of the TWIA is a short-term way to make limited peril coverage available statewide. It is not a long-term solution.

“The Department and consumers also need to understand that expanding the geographic scope and mission of the TWIA also means that the Plan will need to be able to respond financially to more than simply hurricane-related losses. The TWIA is not presently geared-up for such a role.

“The FAIR Plan concept arose out of federal legislation in the aftermath of the urban riots of the late 1960s to address basic property insurance availability in inner-city areas. It was never intended to be a mechanism for writing broad homeowners policies on a statewide basis.

“While there is statutory authority for the creation of a FAIR Plan in Texas, it is standby authority. Before such a plan may be created, the MAP must be shown to have failed. Again, this has not been demonstrated.”

Woods detailed the Alliance’s recommendations to TDI as the department attempts to expand the geographic scope of the TWIA. Those recommendations include:
• Do not expand the covered perils beyond the statutorily authorized wind, hail, fire, and explosion.
• Commit to actuarially sound rates.
• Commit to allowing a complete pass-through of any assessments for shortfalls.
• Re-enforce that the TWIA is the market of last resort by several means: Require documented declinations before a risk can be referred to the MAP; The MAP mechanism should be the only portal for accessing the TWIA; Risks may not be placed by the MAP with the TWIA unless no voluntary market insurer will write the risk; and Producer commissions should not create incentives for TWIA placements.
• Create an insurance advisory committee to assist in working-out a cost-effective phase-in of this expansion. The TWIA needs time to gear-up.
• Impose a definite sunset on the statewide scope of the TWIA. If the availability situation improves, we will no longer need this expanded mechanism. This should be a temporary program.

He added that the Alliance recommends taking no action yet to activate a FAIR Plan. Woods pointed out that a plan could be activated in the future if the MAP and/or TWIA fail to meet their desired goals.

Stating that “escalating loss costs for homeowners insurers must be addressed as part of any meaningful solution to this problem,” Woods offered the following suggestions for long term reforms:
• Increased freedom for insurers to manage their exposures through the use of exclusions, deductibles, and sub-limits in policy and endorsement language. Allow more use of national, rather than Texas-specific forms.
• Repeal of the private right-of-action for alleged unfair claims practices.
• Repeal of the valued policy law.

Topics Texas Homeowners