Policy Changes Now in Effect at Texas Windstorm Insurer
The new year brought some changes to residential and commercial policies provided by Texas’ insurer of last resort for wind and hail along the coast.
New coverages, terms and conditions now apply to Texas Windstorm Insurance Association policies with an effective date on or after Jan. 1, 2020. The changes apply to both new and renewal policies, and many are a result of recent revisions to the Texas Insurance Code by the Texas Legislature, TWIA said.
TWIA has summarized major changes below. More detailed explanations will be mailed to affected policyholders in advance of their policy renewal date.
Replacement Cost Coverage
For policies with replacement cost coverage, claims payments are calculated using the property’s replacement cost value rather than its actual cash value. Replacement cost value is the amount of money needed to replace the property with a similar, new product (i.e. depreciation is not deducted). Actual cash value is the amount of money needed to repair or replace the damaged property at its current market value (i.e. depreciation is deducted). If your policy provides actual cash value coverage you may not receive enough money to cover the full cost of replacing your property after a loss event.
By law, TWIA policies are required to be insured at 80% or more of the replacement cost value of the property to qualify for replacement cost coverage. If a property is not insured to its replacement cost value, any claim for a covered loss is processed at actual cash value.
Changes Affecting Replacement Cost Coverage
Replacement cost endorsement forms automatically added to dwelling policies: TWIA’s new dwelling policy contract is an actual cash value policy with a replacement cost endorsement automatically added for a dwelling property insured to 80% or more of its replacement cost value. Commercial policies must manually add the replacement cost value endorsement. The replacement cost value endorsements associated with the new policy contract are TWIA-802 (dwelling policies) and TWIA-164 (commercial policies). If these endorsements are not included on the TWIA dwelling or commercial policy, a claim will be processed at actual cash value rather than replacement cost value.
Time of replacement cost estimation: On policies with an effective date before Jan. 1, 2020, the type of loss settlement — replacement cost value vs. actual cash value — is determined at the time a claim is made. With the revised policies, the type of loss settlement will be determined at the time a policy is issued.
Replacement cost coverage claims timeline: Policyholders with replacement cost coverage will have 545 days to complete and provide proof of repairs on a claim. This allows for additional time to complete the claim process and preserve the right to request appraisal. Appraisal is the formal process for disputing the amount that TWIA paid on the accepted part of a claim.
Proof of deductible payment: TWIA may require policyholders to submit proof they paid the deductible applicable to their claim before any withheld recoverable depreciation is paid. Recoverable depreciation is the difference between a property’s replacement cost value and its actual cash value. TWIA claims are paid in two parts: first the actual cash value and then the recoverable depreciation after repairs are completed.
Penalty removed for policies without replacement cost coverage: Policies with an effective date before Jan. 1, 2020, that are not insured to their replacement cost value can be charged a monetary penalty during the claim process. TWIA has removed this penalty from its new policy contract.
Extensions of Claim Deadlines
In the event of a catastrophic weather event, the Texas insurnce commissioner may extend claim deadlines an unlimited number of days.
Rules for Policy Transference
To more closely align with standard industry practices, the new TWIA policy contract does not allow for coverage to automatically transfer to a third party except in cases where TWIA provides consent. In the event of a policyholder’s death, the policy will automatically transfer to either the spouse if they were residing in the same household at time of death, or to the legal representative of the deceased policyholder’s estate.