Regulators Take Over TWIA; Reform Bill Filed

March 21, 2011

Management of the Texas Windstorm Insurance Association was taken over by the Texas Department of Insurance in late February as lawmakers and regulators criticized the association’s adminstrative functionality and its handling of claims in the wake of Hurricane Ike in 2008.

In a February 28 letter to TWIA General Manager Jim Oliver, Texas Insurance Commissioner Mike Geeslin indicated that regulators had lost faith that TWIA management is capable of operating the organization “in a safe and sound manner.” TDI has stressed, however, that its administrative oversight of the troubled state-backed property insurer for wind along the Texas coast is only temporary.

The insurance department also said administrative oversight does not affect terms of coverage and insurance policies remain in effect. Policyholders and agents should expect normal business operations, TDI said.

In the wake of TDI’s action, TWIA’s board of directors voted to begin the process of replacing Oliver.

Claims from Hurricanes Ike and Dolly in 2008 wiped out TWIA’s reserves. As of December 2010, the association had paid insured losses of $1.85 billion from Ike claims, but losses may reach $2.3 billion, the Insurance Council of Texas has reported.

Since 2008, TWIA has been under intense scrutiny by regulators, legislators and the media, mostly due to the handling of its claims processes and financial responsibilities.

TWIA’s personnel practices have also come under fire.

In a letter dated Feb. 23, Danny Saenz, senior associate commissioner at TDI, informed Oliver that the department was conducting a “limited scope examination” focusing on the “employment, performance, and termination and/or resignation of Reggie Warren and Bill Knarr.”

Oliver was instructed to provide Saenz with information about the circumstances of the departures of Warren and Knarr from TWIA, about their employment and job performance, and about any severance packages or benefits they received when they left the association.

Saenz also wanted information detailing investigations into any “inappropriate, unprofessional, or unethical conduct that may have led to the resignation, termination or separation of any staff with the level, title or responsibilities commensurate of ‘vice president.'”

State legislators have been highly critical of TWIA’s handling of a massive class action lawsuit dealing with slab — or wind versus water — claims resulting from Hurricane Ike. Rep. Larry Taylor of Friendswood, particularly, believes a nearly $190,000 million settlement reached last year in a class action over slab claims was outrageous, particularly due to the fact that fees paid to attorneys — both plaintiff and defense — amounted to more than $95 million.

Reforms Intended

Rep. Taylor, an independent agent, is co-chairman of the Joint Windstorm Insurance Legislative Oversight Board, a member of the House Insurance Committee and the Select Committee on Emergency Preparedness, and the State Representative for House District 24 in Galveston County.

Taylor has filed House Bill 2818, which is intended to address many of the problems confronting TWIA.

Highlights of HB 2818 include:

  • Requires greater transparency of TWIA board meetings and actions;
  • Provides premium surcharge discounts for certain policies that exceed current building code standards;
  • Strengthens process by which difficult claims must be paid by creating an “expert panel” to determine a wind versus water formula;
  • Allows TDI stricter enforcement authority over inspectors determined to be “bad actors” in the system; and
  • Protects the association against unnecessary litigation costs.

In addition to legislative and regulatory scrutiny, the Travis County District Attorney’s office has begun a criminal investigation into possible fraudulent activity related to claims from Hurricane Ike, Taylor said in announcing the filing of his bill.

The circumstances surrounding the departure of the two high-level TWIA executives — Warren and Knarr — who received questionable severance packages are also under investigation, Taylor said.

Topics Texas Claims Hurricane

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Insurance Journal West March 21, 2011
March 21, 2011
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