Texas Regulators Looking at Ways to Restructure TWIA

Texas insurance regulators are seeking a consultant to explore ways to restructure the insurer of last resort for properties along the Texas coast.

Texas Insurance Commissioner Eleanor Kitzman says she believes TWIA’s present structure is unsustainable. The Texas Department of Insurance issued a request for proposal (RFP) seeking assistance in identifying, evaluating and implementing restructuring options to reduce the Texas Windstorm Insurance Association’s (TWIA) exposure and improve service to policyholders.

“TWIA was supposed to be the market of last resort for the 14 coastal counties that comprise Tier 1, but that is not the case anymore. In 2001, TWIA’s market share was 17.9 percent. In 2010, it had more than tripled to 57.2 percent and it continues to grow,” Kitzman said in an announcement released by TDI. “With no other significant source of funding to pay claims, this growth in exposure is an excessive burden on coastal citizens. Additionally, it is not reasonable to expect that any single organization can effectively manage the explosive growth in claims activity that occurs after a significant tropical storm.

“On July 1, 2008, TWIA had 247 open claims; 90 days and two storms later, it had over 65,000 claims and was simply overwhelmed. A fundamental restructuring of TWIA is necessary to address these and other operational issues.”

In a special session in 2011, the Texas legislature passed House Bill 3, which authorized changes to TWIA’s operations and called for a legislative study group to analyze insurance needs along the Texas coast, examine TWIA operations and report back to the legislature.

Among other things, HB 3 requires claims be filed within one year of an event, streamlines the dispute resolution process and clarifies that bonds can be issued only once per calendar year. In addition, the bill allows policyholders to sue for claims and collect double damages — rather than triple damages that previously were allowed — if they are able to prove TWIA intentionally withheld a legitimate claim.

TDI said a possible option it is considering is a member reinsurance program in which insurers would be allowed to reinsure some portion of TWIA policies rather than issue their own policies. Another option would be a contractual servicing carrier program whereby insurers would be paid a fee to handle all servicing of TWIA policies.

In addition to the selected consultant, Kitzman will name a technical advisory committee made up of stakeholders to provide input into the restructuring process. Kitzman said she expects the consultant and advisory committee to be named by April 1, 2012, and to have a preliminary report by June 1, 2012.

Some interested parties believe TDI’s planned investigation into TWIA and coastal insurance issues doesn’t go far enough.

“We would encourage Commissioner Kitzman to broaden the scope of her inquiry,” states R.J. Lehmann, deputy director, Center on Finance, Insurance, and Real Estate at The Heartland Institute. “While TWIA’s claims-handling challenges certainly are an issue, they pale in comparison to the authority’s solvency concerns. TWIA must ensure that it can meet its financial obligations and all potential solutions should be on the table. These should include rate increases, incentives for private insurers to take out TWIA policies, and greater reinsurance and catastrophe bond protection to spread Texas windstorm risks around the globe.”

TWIA was overwhelmed with claims resulting from Hurricanes Ike and Dolly in 2008, which wiped out the association’s reserves. Four years later, claims continue to trickle in and losses could reach $2.3 billion, the Insurance Council of Texas has reported.