Rate Hike Proposal Goes to TWIA Board

In advance of the June 1 start of hurricane season, the actuarial underwriting committee of Texas’ property insurer of last resort for coastal counties is recommending a rate increase.

The committee on April 20 approved a proposal that the board of directors of the Texas Windstorm Insurance Association (TWIA) file for an overall rate increase of 4.7 percent with an effective date of Oct. 1. The rate increase would vary somewhat within TWIA’s coastal territories – increasing or decreasing according to the risk – while keeping within a statutorily limited increase of 8 percent.

The committee also recommended the board file in August for an additional overall rate increase of 5 percent with an effective date of Jan. 1, 2013.

The proposal was approved on a 5-2 vote.

TWIA was overwhelmed with claims after Hurricanes Ike and Dolly in 2008. Its reserves were wiped out and it was slammed with lawsuits over claims handling. The Texas Department of Insurance (TDI) placed TWIA under administrative oversight in early 2011 due to an ongoing series of problems at the insurer and questions over the quality of its management.

During the April 20 committee meeting, TDI representatives recommended changes to improve the quality of TWIA’s underwriting. TDI’s Marilyn Hamilton said regulators have “concerns related to the underwriting process” at TWIA, especially in light of the problems encountered in claims management following the 2008 hurricanes.

She said TDI would like to see three questions added to TWIA’s policy application that the agency believes will improve the insurer’s knowledge of the risks it underwrites. The questions would seek: information about any additional insurance and limits for the applicant’s property; information about the property’s flood carrier and flood insurance limits; and for renewal applications, to determine whether any new structures were added to the property during the policy year.

Insurance agents on the committee balked at TDI’s proposal, saying that requiring agents to collect that additional information would be costly to agents and possibly lead to errors and omissions issues. Agents already are required to confirm the existence of flood policies, if applicable, to the property being insured.

It was suggested that if TWIA needs the additional information, the company should develop a process to secure it.

The Heartland Institute, a free-market think tank, has called on the TWIA board to adopt the actuarial committee’s proposal regarding the rate increase. The Institute noted that an actuarial analysis conducted on TWIA’s behalf by Merlinos and Associates found that if the insurer doesn’t raise rates, there is a 27 percent chance it would not be able to cover all of its liabilities during the 2012 hurricane season.