Official: Texas Coastal Insurer Is Unsustainable

The Texas Windstorm Insurance Association is not sustainable and likely won’t be until the state spreads the costs of risks associated with major hurricane strikes beyond just Texans living in coastal areas, the state’s top insurance official said.

Eleanor Kitzman, commissioner of the Texas Department of Insurance, told a special state House and Senate joint committee on seacoast territory insurance that it no longer makes sense to confine the costs of the state’s property insurer for people living on the coast solely to property owners in Texas’ 14 coastal counties and part of Harris County.

“You cannot spread risk in such a defined area,” Kitzman said. “The phrase ‘rearranging deck chairs on the Titanic’ comes to mind.” She said simply raising insurance rates in high-risk areas was not the only solution, but added that she believes coastal rates remain too low.

Kitzman said the insurance association has $750 million on hand and could issue bonds to raise $2.5 billion in the event of a catastrophic storm.

She said that means the state is prepared to cover policyholder losses up to about one monster storm every 60 years but that destruction on an even larger scale was beyond its capacity.

Known as TWIA, the association is a nonprofit, state-supervised insurer-of-last-resort for people who can’t get private property insurance in coastal areas, where risks are often so high that private insurers will not write policies. Kitzman suggested that the state could improve TWIA’s fiscal health by trimming up to 20 percent of its policyholders who own property near coastal areas but farther from the water.

For some, the Texas coast may conjure up images of posh beach homes. But legislators heard testimony on how coastal residents earn less on average than Texans statewide. Many also work at refineries or otherwise rely on the oil-and-gas industry and can’t live anywhere but near the coast, despite the high insurance premiums for their homes or businesses.

Some 52 percent of TWIA-insured homes are valued at $150,000 or less, said John Polak, TWIA’s general manager.

Deeia Beck is public counsel and executive director for the Office of Public Insurance Counsel, an advocate for consumers in insurance matters. She suggested imposing a 1 or 2 percent fee on hotel rooms, car rentals and other tourism-related activities could bolster TWIA’s coffers, and noted that a 2 percent surcharge on hotel rooms alone may generate $30 million annually.

“I realize that in terms of TWIA, it’s a drop in the bucket,” Beck said. “But this is a bucket that needs a lot of drops.”

In May, TWIA increased rates for policyholders in coastal areas by 5 percent. The joint committee also heard from mayors and other municipal leaders along the Gulf Coast who said residents there can’t afford to have their insurance costs keep rising.

“We really would like to help on this,” said Susie Houston, mayor of the Gulf Coast community of Laguna Vista. She called for residents of all of Texas’ counties to help shoulder TWIA’s costs.

“It’s important that we spread the insurance costs around,” Houston said. “I would urge you today to spread them around the 254 counties and not just the 14 (coastal) counties.”

Rep. Todd Hunter, a Corpus Christi Republican, has founded a special task force that aims to restructure or entirely replace TWIA. He asked Kitzman, Polak and Beck if the agency was “actuarially sound,” meaning the premiums it collects are enough to offset payouts in event of especially destructive storms. All three answered no.

“TWIA is not sound?” Hunter told Polak, almost yelling. “Why don’t we get rid of you?”