Updated, 3:45 p.m.:
The board of the state’s embattled Texas Windstorm Insurance Association agreed Tuesday to take steps that it says will better prepare the agency for the 2013 hurricane season and be more efficient over the long term.
At the first meeting of the board of directors since hurricane season began, TWIA representatives said they would meet with Texas Insurance Commissioner Julia Rathgeber on Friday to discuss taking out a $500 million loan in case a storm hits. If the agency used the loan money to pay for storm damage, it would have to pay $125 million in interest.
The TWIA board also agreed to enforce the requirement that all policyholders must carry a WP-I8 certificate beginning in 2016, which guarantees that the home is up to current building standards.
Some lawmakers have criticized the agency for not enforcing this requirement, saying that insuring people whose homes are not inspected is a huge liability.
“It’s time to move on,” said state Sen. Larry Taylor, R-Friendswood, an insurance agent. “People either need to make their repairs or get their insurance elsewhere. This is an insurer of last resort, it’s not a charity.”
Officials at Tuesday’s meeting also rejected a proposal by former Insurance Commissioner Eleanor Kitzman, to declare TWIA bankrupt. Proponents of such an action say that declaring TWIA bankrupt would put lawsuits against it on hold and give it time to build up its assets. But opponents say it would destroy the agency’s credibility.
Earlier this month, Rathgeber upheld a decision by Kitzman denying TWIA’s request for the loan, citing concern over TWIA’s financial condition. She said she would reconsider if TWIA could demonstrate its financial situation had changed.
“I want to reassure everyone that I do want to work together to ensure that we provide a stable insurance plan for the people on the coast,” Rathgeber said. “This includes working with you and working with the coastal delegation to ensure TWIA maintains a stable insurance market.”
TWIA is currently $160 million in the red because of damage caused by Hurricane Ike in 2008 and two recent storms in the Santa Fe and Corpus Christi areas this year. The agency is trying to increase its storm reserves to $3.45 billion.
The agency recently reached a $135 million settlement with homeowners who sued for Hurricane Ike damage in May. It currently has 60 Hurricane Ike lawsuits outstanding and has received 51 letters of representation, which are usually followed by lawsuits, TWIA officials said.
TWIA officials say that if a storm were to hit now, they would only have $500 million to pay out claims.
As the Texas Windstorm Insurance Association conducts its first meeting of the 2013 hurricane season on Tuesday, the agency is scrambling for money to prepare for potential storms. If a storm similar to 2008's Hurricane Ike were to ravage the coast, TWIA officials say, the agency does not have enough money in the bank to cover even half of the damages.
TWIA, the state’s insurer of last resort for coastal residents who cannot get insurance elsewhere, has been under water financially since Hurricane Ike ravaged the coast in 2008. And it has been under fire from lawmakers for its oversight of the claims process. At the TWIA board meeting Tuesday, the agency will be grappling with ways to right itself financially just a day after lawmakers grilled agency officials over their financial situation and their plans to oversee post-hurricane rebuilding.
"They claim they've improved and changed, but we have no way of knowing that until we have a storm," said state Rep. John Smithee, R-Amarillo, chairman of the House Insurance Committee.
Coastal policyholders claimed $2.7 billion in storm damages from Ike, and paying off those claims and subsequent litigation put TWIA $183 million over budget in 2012. The agency reports it has $500 million on hand for storms. But because of a recent $135 million settlement with Hurricane Ike homeowners and outstanding lawsuits, the exact amount the agency has on hand is unclear.
TWIA’s board of directors on Tuesday will discuss two methods the agency hopes to use to get financial stability. TWIA is hoping to increase its storm funding capacity to $3.45 billion. Of that, $500 million would come from a loan, $1.5 billion from selling bonds, $1.25 billion from reinsurance and $200 million from premiums and TWIA's Catastrophe Reserve Trust Fund. Both taking out loans and selling bonds are options easier discussed than accomplished.
TWIA must get approval from the Texas Department of Insurance to take out a $500 million loan. Former Insurance Commissioner Eleanor Kitzman denied TWIA’s request earlier this year to take out the loan because the agency did not have enough money in the bank to cover it. Kitzman’s replacement, Julia Rathgeber, upheld Kitzman's decision earlier this month but said she would reconsider if TWIA could demonstrate its financial situation had changed.
The agency has also had a hard time selling bonds. In a meeting with the House Insurance Committee on Monday, Bob Coalter, the executive director of the Texas Public Finance Authority, said his agency attempted to take TWIA bonds to the stock market last year and determined they would be hard to sell because of TWIA’s financial history.
The agency’s problems do not end there, though. The agency has been in lawmakers' crosshairs. Led by guest hearing attendee Larry Taylor, a Republican state senator from Friendswood and an insurance agent, legislators on the House Insurance Committee grilled TWIA officials on Monday, alleging they had been dishonest in the agency's financial statements and had not overseen all repairs on damaged property.
Lawmakers pointed out that in the agenda for the board meeting on Tuesday, the association did not update its financials to reflect a $135 million settlement the agency reached in May with homeowners who sued the agency for Hurricane Ike damage.
Taylor also criticized TWIA for not following up with all plaintiffs who sued the agency to make sure they were rebuilding their homes according to codes to prevent future damage.
“You never pay for a damage you haven’t seen and then you don’t finalize payments until you see it’s been done. Otherwise, you pay for the same claim over and over again,” Taylor said. “And I can tell you, I’ve seen claims from Hurricane Ike where we paid for the same roof more than once, which is appalling.”
Efforts to reform TWIA failed to pass the Legislature during the regular session, and Gov. Rick Perry did not add the issue to the special session agenda.