The Texas Windstorm Insurance Association (TWIA) is a public-private agency that's a pool of property and casualty insurance companies in Texas. It serves as an insurer of last resort for homeowners along the Texas coast. After several for-profit insurance companies stopped writing windstorm policies along the coast, the state created the Texas Catastrophe Property Insurance Association, now TWIA, in 1971.
TWIA provides basic wind and hail insurance coverage for property owners. The not-for-profit, quasi-state agency has seen its policyholders triple to hundreds of thousands since Hurricanes Katrina and Rita hit the gulf coast in the mid 2000s.
TWIA is similar to for-profit insurance companies in that it gives homeowners a written contract that details the coverage and restrictions of their insurance policy, policyholders make premium payments and TWIA pays claims. TWIA is different from for-profit insurance companies because it doesn't hire agents to sell policies. Licensed agents represent the policyholder in the insurance-buying transaction for TWIA coverage by acquiring coverage cost quotes, submitting policy applications and filing claims.
TWIA is governed by a nine-member board of directors made up of: four members representing the insurance industry, four members who reside in the first-tier coastal counties (counties touching the coast) including at least one person who is a property and casualty insurance agent, one member who represents an area of the state not located on or near the coast and one non-voting member who is a licensed engineer residing in a first-tier coastal county (counties touching the coast).
After hurricanes Dolly and Ike resulted in $2.5 billion in losses in 2008, weaknesses in the TWIA funding structure became apparent. Reinsurance proceeds, insurance that is purchased by an insurance company as a means of risk management, covered $1.5 billion in losses and TWIA insurer members were assessed $530 million, of which $230 million will be repaid to insurers in premium tax credits over a five year period. Since all Texas insurers are members of TWIA, a large assessment can increase property insurance rates statewide.
As a result, HB 4409 was passed by the Texas Legislature in 2009, which changed the funding structure to cover losses up to $2.5 billion through the sale of public securities. The bill also caps the exposure of member insurers, allowing them to better calculate risk and, in turn, makes them less likely to exit the Texas market entirely or raise rates aggressively.
Critics maintain that TWIA funding is still insufficient to cover potential losses because a Category 4 or 5 storm could cause $8-$10 billion in damage to Galveston, and that costal residents pay artificially low insurance rates subsidized by all Texas residents.