Texas Windstorm Insurer’s Rate Hike Request Denied

January 25, 2021

Texas regulators in early January rejected a request for a 5% rate increase by the state’s insurer of last resort for wind and hail for properties along the Texas coast.

The Texas Department of Insurance denied the Texas Windstorm Insurance Association’s filing for a 5% rate increase on residential and commercial policies in part because TWIA had not made available for public review the analysis upon which the association’s board of directors determined the increase was necessary.

TWIA’s actuarial and underwriting committee in November 2020 had recommended no rate action to TWIA’s board. But at its Dec. 8, 2020, quarterly meeting, the board voted in favor of the 5% rate hike. In its rejection letter, TDI stated that under the Texas Insurance Code, TWIA should have made the rate adequacy analysis performed by Willis Towers Watson (WTW) and presented to the board at the meeting available to the public on its website for 14 days before the rate filing vote.

WTW found TWIA rates to be inadequate by 26 percent for residential policies and 44 percent for commercial policies. TDI viewed the WTW analysis to be part of the association’s rate analysis.

In the Jan. 8, 2021, rejection letter to TWIA General Manager John Polak, TDI Chief Deputy Commissioner Doug Slape wrote that the notice of TWIA’s Dec. 8 board meeting “failed to clearly inform the public that the board would vote on a rate filing. In fact, the adequacy of the notice is the subject of a request for an opinion before the Office of the Attorney General (RQ-0390-KP). The board vote to increase rates was done under agenda item #8 of the meeting notice, which stated ‘Presentation and Review of TWIA Actuarial and Underwriting Committee Meeting Rate Recommendations.’ However, the Actuarial and Underwriting Committee had not recommended a rate increase. In addition, past TWIA meeting notices have specifically listed consideration of a rate filing, and it is unclear why TWIA deviated from its past approach. The meeting notice should have clearly indicated that the board might vote on a rate filing.”

TWIA Vice President of Communications & Legislative Affairs Jennifer Armstrong noted in a media release that, “TWIA had not considered the WTW analysis as the Association’s analysis. How-ever, TWIA will defer to the Department’s interpretation of this statute whenever rate filings are considered by the Board in the future.”

TWIA has considered rate increases several times in the years following Hurricane Harvey, which devastated parts of the Texas coast in 2017. Its August 2018 10% rate increase filing was initially deferred at the request of Gov. Greg Abbott and subsequently withdrawn in June 2019. Despite the recommendation of TWIA’s actuarial and underwriting committee for a 5% rate hike in late 2019, the board in December 2019 deferred any rate action. The board instead voted to increase the assessment of member insurance companies by $90 million for losses from Hurricane Harvey. In August 2020, TWIA filed a 0% rate change with TDI.

Private property/casualty insurers in Texas, which are subject to assessments if TWIA’s losses exceed the funds available to pay for them, have long asserted that TWIA’s rates are inadequate to cover the risks it insures. In a statement released by the Insurance Council of Texas, which represents P/C insurers operating in the state, its executive director, Albert Betts expressed disappointment in TDI’s rate decision.

“Unfortunately, TDI rejected the rate increase and based their decision on procedural errors by TWIA, to the delight of some coastal stakeholders who oppose any rate increase regardless of the evidence and need to protect TWIA’s financial stability. However, TDI’s rejection did not speak to the appropriateness of the approved rate increase nor did TDI address TWIA’s need to operate like an insurance company and its responsibility under the law to maintain adequate rates. It’s disappointing to see this decision when the TWIA board attempted to meet its legal duty and the modest rate increase would help provide additional funds to strengthen TWIA’s ability to pay losses after the next hurricane,” Betts said.

TWIA’s board is next scheduled to meet on Feb. 23, 2021.

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