There may not be a hefty number of property/casualty insurance issues taken up by the Texas Legislature when it convenes in 2013, but there’s certain to be one dominating topic to counter any lack of diversity. That would be: what to do about Texas’ property insurer of last resort along the coast, the Texas Windstorm Insurance Association (TWIA).
“The one insurance issue that I know for sure will come up and will get a lot of air time is TWIA and windstorm issues,” said Texas Insurance Commissioner Eleanor Kitzman during the annual meeting of the Texas Surplus Lines Association.
Kitzman said regardless whether the Texas Department of Insurance crafts one, she is “sure that there will be lots of bills dealing with windstorm issues.”
TWIA has been under intense regulatory and legislative scrutiny since 2008’s Hurricane Ike wiped out its reserves. A firestorm of litigation ensued over TWIA’s handling claims, some of which is ongoing. The organization was placed under administrative oversight of TDI in early 2011.
Kitzman has previously stated TWIA’s current structure is not sustainable.
“Unless you have been under a rock, you know there has been a lot of attention, a lot of media in the last six or eight months about TWIA, about the circumstances surrounding TWIA right now,” Kitzman said.
TWIA’s exposure has grown rapidly in recent years along with the expansion of coastal populations. Meanwhile, more and more private insurers are writing fewer and fewer policies in Texas’ coastal counties.
TWIA’s exposure continues to grow, Kitzman said, and “contrary to what you may hear, TWIA’s rates have been relatively flat.”
The association filed in August for a 5 percent rate increase effective Jan. 1. That’s a practice TWIA has followed for the past two years and intends to continue.
Even so, Kitzman said, “for the rest of the property insurance market statewide rates have gone up more than that because in Texas it’s not just about the coast. We have a lot of weather. We have a lot of catastrophe losses.”
In 2009 the lawmakers voted to change the excess loss funding mechanism of TWIA to “bonds that could be issued by TWIA after an event,” Kitzman noted. “But that bonding capacity was capped at $2.5 billion. That wouldn’t cover another Ike. With reinsurance and a little bit of cash on hand, TWIA’s got about $3.4 billion, or had $3.4, $3.5 billion, for the 2012 storm season, which hopefully is over.”
The problem with the bond/reinsurance scenario is two-fold.
First, the bonds are post-event bonds. “So after a storm you go to the bond market and if you’re successful you sell the bonds and its 60 days before you get the money,” Kitzman said. “That is certainly not a good position for TWIA policyholders to be in.”
Second, in a worst-case scenario a couple of smaller storms would use up the available bonding, but if no one storm reached $2.3 billion TWIA could not access its reinsurance, which attached at $2.3 billion.
“So there would have been $800 million less funding available,” Kitzman said.
She commented that the surplus lines industry has “large role to play” when it comes to windstorm property coverage.
“Windstorm and catastrophe insurance is one of the areas … are just tailor made for the surplus lines market in some instances,” she said.
Noting the devastation that Hurricane/Superstorm Sandy wrought recently on the Northeast, Kitzman said she’d heard someone say “there were some legislators in the Northeast that were wishing that they had a wind pool.
“I doubt that,” she added, “not if they understand how it works.”