Lawsuit Relief Needed for TWIA Depopulation Plan to Work: Lawmakers

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A new law that becomes effective Sept. 1 in Texas will give the state’s property insurer of last resort for wind and hail along the coast more leeway in a plan to reduce its overall exposure by incenting private insurers to take over its policies.

But some say the current post-catastrophe litigation environment in the state will hamper the efforts by the Texas Windstorm Insurance Association to reduce the number of policyholders on its books.

Passed by the Texas Legislature this year, Senate Bill 900 grants the Texas Department of Insurance and TWIA “the authority to develop a formal depopulation or ‘takeout’ program,” according to a summary of the bill on TWIA’s website.

The association currently has in place the Voluntary Coastal Windstorm Insurance Portal, where member insurance companies may access certain policyholder information to determine whether the private carrier might be interested offering wind coverage to the individual risk.

The new bill will allow private insurance companies to take out large numbers of TWIA policies, rather than one at a time.

“Policyholders are guaranteed rates and coverages comparable to TWIA’s for the first year. Take out insurers must offer to renew the policy for three years and policyholders will maintain their ability to keep their own agent, and even to choose to stay with TWIA if they desire,” TWIA said.

The association was slammed with lawsuits following Hurricane Ike in 2008, causing TWIA’s overall cost from the storm to climb from an estimated $1.5 billion to more than $2.7 billion, according to state Sen. Larry Taylor of Friendswood.

Speaking as part of a panel at the 2015 Mid-Year Property & Casualty Insurance Symposium held by the Insurance Council of Texas in early July, Taylor said TWIA’s costs from the 2008 storm rose over the course of five or six years because of litigation over claims handling.

Many of those lawsuits were over claims filed several years after the storm and many others concerned claims that had previously been settled and paid.

House Bill 3, passed in 2011, aimed to curtail such practices by limiting the amount of time both claims and litigation could be filed against TWIA. Those limitations don’t apply to private property insurers in the state, however.

In recent years, there has been a noticeable uptick in litigation against property insurers over claims related to hailstorm events. As in the aftermath of Hurricane Ike, much of the litigation has been over claims that have been settled and paid, according to Steve Badger, an attorney with Zelle Hofmann Voelbel & Mason LLP in Dallas.

An attempt was made this year to pass legislation aimed at limiting lawsuits against private insurers over claims resulting from widespread events like hailstorms and wildfires. But after being passed by the full Senate and the House Insurance Committee, Senate Bill 1628 by Sen. Taylor was never considered by the full House of Representatives.

“TWIA is not getting the lawsuits from those hailstorms; it’s the private carriers that are getting hit. … So I know it [the legislation] works,” Taylor said during the ICT symposium.

The purpose of the depopulation section of SB 900 “is to create a mechanism. … This should make it easier for the private market to go in and negotiate for a batch of policies all at one time,” said state Rep. Ken Sheets, who represents District 107 in North Texas.

Sheets had filed a TWIA depopulation bill in the House, HB 3204, which he said was brought to him by several parties, including the association.

“We offered it as a standalone bill and wanted to get it moving. We saw this bill [SB 900] as an opportunity to get it heard and get it into law,” said Sheets, who also participated on the panel at the ICT Symposium.

SB 900 should “make it easier for the industry to get these policies into the private market. It offers protections for consumers — the policies have got to be comparably priced, it’s got to be with a financially stable company and there are certain protections for three years,” Sheets said.

Like Taylor, Sheets said a resolution to the litigation situation is necessary for the depopulation program to really work.

“We have to put some protection in there for the private industry while protecting the consumer. We’re not trying to give the industry a free pass, but we can’t have this current situation that we have right now,” he said.

Danny Saenz, a deputy commissioner at TDI and another participant in the ITC panel discussion, said SB 900 creates “better certainty … and viability for TWIA in order to be able to protect consumers.”

He also agreed, however, that for “depopulation to really work and be successful, you’re going to have to put some kind of litigation control in place.”

TDI will do what is necessary to carry out the intention of the bill and put regulations in place, but “for the industry to really buy into it and get into the marketplace and start writing some of those coverages along the coast, I think you’ve gotta’ have some type litigation reform,” Saenz said.