Texas Legislators Pass Windstorm Insurance Bill

On the first day of the official hurricane season for 2009, and on the last day of the Texas legislative session, Texas lawmakers passed a bill that would recapitalize the Texas Windstorm Insurance Association (TWIA).

Legislators voted 31-0 on HB 4409.

The Texas Senate amended the conference committee report on HB 4409 on May 27 to include provisions for dealing with TWIA funding reform. TWIA funding reform had been designated an “emergency item” by Governor Rick Perry who later indicated that he would call for a special session if the Legislature failed to address TWIA.

The new plan provides funding for a $2.5 billion storm, beyond which a special session of the Texas legislature would be anticipated. TWIA previously had an open-ended funding layer to pay for claims from multi-billion dollar storms, but the Texas legislature cited the rarity of such instances.

The new layers of TWIA funding include: 1) The first $1 billion in claims will be covered by post-event bonds, funded by TWIA policyholders; 2) The next $1 billion in claims would be covered by bonds to be paid on a 70-30 proportional basis between TWIA coastal policyholders and a non-recoupable assessment on statewide carriers not to exceed a maximum of $300 million; and 3) The final $500 million would be covered by statewide assessments on carriers. Insurers have the option of financing, reinsuring or self-insuring their assessments.

“The Texas Legislature is to be commended for passing a TWIA bill that represents a reasoned compromise among all interested parties,” stated Fred C. Bosse, AIA regional vice president, upon passage of the legislation on Monday. “The House and Senate leadership worked hard to craft a bill that is both fair to insurers and ratepayers across the state while providing the much needed coverage for property owners on the coast,” Bosse added.

TWIA serves as the insurer of last resort to Texas property owners in 14 coastal counties. It receives funding from policyholders’ premium payments, assessments on insurance companies and now bonding, as well as the option for TWIA to purchase reinsurance. Recapitalization of TWIA was imperative following the depletion of its funds last year in the aftermath of hurricanes Dolly and Ike.

“Two important goals are accomplished from the insurance industry’s perspective in this legislation,” said Bosse. “First, unlimited assessments against insurance companies have been eliminated. Second, all such assessments are post-event. While the assessments won’t be recoupable, ending unlimited assessments and making them post-event only will go a long way toward maintaining a healthy insurance market in Texas,” Bosse added.

Source: AIA