In advance of the 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 voted for a proposal that the board of directors of the Texas Windstorm Insurance Association file for an overall rate increase of 4.7 percent that would become effective on 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 that 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 resulting from Hurricanes Ike and Dolly in 2008, which wiped out reserves, and the insurer was inundated with lawsuits over its claims handling. 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, representatives from the Texas Department of Insurance recommended changes to improve the quality of TWI’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 Hurricane Ike in 2008.
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, Hamilton said. 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 have been 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 omission 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 would benefit from such 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 state-run 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.
“Originally an insurer-of-last-resort, TWIA has seen its market share in the 14 coastal counties jump from less than 20 percent to nearly 60 percent over the past decade. Risk-based rates are an essential first step to bring down the rolls of TWIA policyholders and to protect taxpayers from the consequences of a TWIA shortfall,” stated Julie Drenner, Texas director of The Heartland Institute.