Plans to Reform Texas Wind Pool Taking Shape
Two Texas lawmakers have introduced separate but similar bills aimed at reforming the troubled state-backed wind risk insurer for property along the Texas coast. At a packed hearing on Mar. 15, Texas House of Representatives Insurance Committee Chairman Rep. John Smithee and committee member Rep. Larry Taylor described highlights of their measures, which seek to resolve a mix of serious problems at the Texas Windstorm Insurance Association.
Smithee, from Amarillo, and Taylor, an insurance agent and coastal legislator from Galveston County, noted that their bills are works in progress and invited constituents and TWIA policyholders to share their experiences with claims following Hurricane Ike and Dolly in 2008.
The two storms wiped out the association’s Catastrophe Reserve Trust Fund, around $370 million. The payout for Ike is expected to continue to climb as claims are still coming in and lawsuits are still being filed. The reserve fund is now around $150 million, Taylor said during the hearing — nowhere near enough to cover a possible $8 billion to $10 billion worst-case scenario loss based on TWIA’s coastal exposure.
As Smithee put it, “TWIA is basically sitting there with virtually nothing. And they’re getting ready to write about $80 billion worth of insurance, with a very possible or even probable maximum loss somewhere in the $8 billion to $10 billion range. They don’t have any money. They don’t have any way to pay those claims.”
The wind pool’s lack of money is only the beginning of its problems. The organization’s claims handling processes, overall management and HR practices have all been questioned. In February, the Texas Department of Insurance put TWIA under administrative oversight, and TWIA’s board removed Jim Oliver as general manager, naming Randy Wipf as acting general manager.
The Bills
Taylor introduced House Bill 2818 and Smithee’s measure is House Bill 272.
Taylor’s bill would tweak the current funding formula for TWIA, allow for increased TDI oversight and enforcement, address problems with property inspection, and clarify that association board meetings are open to the public. HB 2818 would also allow for premium discounts for buildings built to higher-than-code standards, require territorial rating, mandate that properties in flood zones or those that are subject to wave action — beach properties — purchase flood insurance, and reduce the maximum limit for homes subject to wave action to $500,000.
Taylor’s bill also restricts the filing of claims-related lawsuits to no later than one year after the date of loss. In conflicts over properties subject to wave action, it requires binding arbitration. In other parts of TWIA’s territory — 14 coastal counties and parts of Harris County — policyholders can choose arbitration when they purchase the policy and receive a premium discount.
HB 272, filed by Rep. Smithee, addresses many of the same problems as HB 2818: TWIA’s governance and management; the association’s financial condition; and its claims processes.
HB 272 would eliminate the extra damage provisions in the insurance code, which allow up to treble damages. Those provisions are designed to punish insurers that behave badly, Smithee said. “The problem is, when you’re dealing with a normal, private insurance company, when you assess these damages, you’re assessing the people that did the bad deed. They have to pay the money.
“In the case of TWIA if you assess punitive or treble damages, it’s not the TWIA people that pay it. … It’s the policyholders, primarily people who live on the coast … who pay this money in your premiums the next few years. Ultimately, it’s the people I represent all the way up into the Panhandle who have to pay this money,” he continued.
Smithee’s bill would streamline the application and policy issuance processes to reduce the burden on agents, and allow the insurance commissioner to control the rate of agent commissions.
HB 272 would also mandate arbitration in certain claims cases, require flood insurance in flood and wave action zones, and reduce limits for properties in flood zones.
The bill also addresses the dispute resolution process. Smithee said he’s open to suggestions for a better way to resolve claims disputes, including required arbitration or the use of a re-view panel in advance of court action.