Insurance experts, legislators and coastal residents weighed in Wednesday on how to reform the Texas Windstorm Insurance Association at the first hearing of the Joint Committee on Seacoast Territory Insurance – but no one could provide a simple solution to the financial instability of the organization.
“The current structure of TWIA is unsustainable,” said Insurance Commissioner Eleanor Kitzman, who addressed lawmakers at the hearing. “The solution is not simply to raise rates on the coast, although I believe rates on the coast are inadequate to protect policyholders.”
Legislators and the speakers discussed possible solutions to TWIA's financial woes at the hearing, such as instituting additional taxes along the coast, reducing the number of TWIA policies by incentivizing private insurers to write more policies in the area and territorial premium rate increases – that is, charging higher insurance rates based on how close policyholders live to the coast.
Although TWIA could potentially access around $4 billion from premiums collected from policyholders, bonds and reinsurance, insurance experts agree that may not be enough money to cover policyholders’ claims if a catastrophic storm or a series of severe storms hit the Texas coast.
Given the ongoing financial struggles of TWIA, lawmakers established the joint committee in 2011 to evaluate ways to improve the organization or establish alternative solutions to insuring coastal residents. Rep. John Smithee, R-Amarillo, and Sen. John Carona, R-Dallas, are the committee's co-chairs. Three additional senators, three more state representatives and four other members also serve on the committee.
Shane Howard, a Jefferson County tax assessor who serves on the committee, called TWIA “a competitor for private insurers."
Although TWIA has increased rates by 5 percent, the maximum increase allowed under state statute, a couple years in a row, critics say the premium rates are still artificially low for the amount of risk that TWIA is assuming. That makes it hard for private insurers to compete, and thus, they become unwilling to write wind insurance along the coast.
TWIA was intended to be an insurance option of last resort and coastal residents must prove they cannot find a private insurer before TWIA will write them a policy. For 256,000 coastal policyholders, TWIA is the only game in town.
John Polak, the general manager of TWIA, and Deeia Beck, the executive director of the Office of Public Insurance Council, also addressed the committee.
Polak, Beck and Kitzman agreed the solution was complicated, and none presented a concrete plan of how to expand private coastal insurance or improve the financial stability of TWIA.
Kitzman referred to a report by Alvarez and Marsal Insurance Advisory Services, an outside actuarial firm, which the TWIA board of directors commissioned at her request. The report, which cost the department $350,000, outlines various options for restructuring TWIA.
After Polak and Kitzman confirmed TWIA is not actuarially sound, state Rep. Todd Hunter, R-Corpus Christi and a member of the committee suggested getting rid of TWIA entirely.
People on the coast “don’t need” TWIA if the organization won’t be able to pay their claims, said Hunter, adding he’s tired of hearing “how bad” the coastal challenges are from the agencies and other legislators.
“What you need to let the coastal residents know is that there’s something positive,” he said. “All I’ve heard is let’s tax hotels, let’s depopulate [TWIA.]”