Is TWIA’s Progress to Rate Adequacy over?

It’s no secret that the Texas Windstorm Insurance Association (TWIA) has a funding problem. Rates for coastal windstorm insurance offered by the state-created agency long have been well below the actuarially sound levels necessary for TWIA to meet its financial obligations over the long term.

While TWIA’s rates remain artificially low, the organization has been making progress toward rate adequacy via a series of small but steady annual rate increases. These increases were enacted on narrow 5-4 votes by TWIA’s board of directors, with a clear split between coastal board members and members representing business and noncoastal areas.

During the last legislative session, Texas enacted S.B. 900, which among other things reorganized TWIA’s board. At the time, R Street repeatedly raised concerns that the board reorganization could be used to eliminate the board majority in favor of needed rate increases, which would effectively halt any progress toward rate adequacy. Unfortunately, it’s beginning to look like we were right:

After six straight premium hikes of 5 percent, homeowners insured through the Texas Windstorm Insurance Association won’t see a rate increase in 2017 … The reprieve is a possible result of a legislative reorganization in 2015 of TWIA’s board to add more coastal members. Those additions likely reduced the influence of members from inland areas who don’t have exposure to tropical storms.

Texas, like much of the Gulf Coast, has been lucky over the past few years due to low storm activity. But we shouldn’t let our good luck lead to a sense of complacency. Storms are a long-term inevitability in Texas, and unless TWIA is put on a proper financial footing, the day will come when it finds itself no longer able to pay out claims to those who rely on it.

Topics Texas