Texas Windstorm Insurance Assoc. Chief Favors Gradual Rate Hikes

The Texas Windstorm Insurance Association recently filed for 5 percent increases in both its residential and commercial rates, effective Jan. 1, 2011. While indications are those hikes won’t bring the rates for the state’s coastal insurer of last resort up to the level they need to be, they likely will have to be enough for now.

TWIA provides wind and hail coverage in 14 coastal counties and parts of Harris County. In accordance with the Texas Insurance Code, TWIA is required to make an annual rate filing with the Texas Department of Insurance no later than Aug. 15 of each year. Actuarial data indicates that rate increases of 27 percent for residential and 36 percent for commercial are needed.

TWIA Executive Director Jim Oliver has said he’s not so sure there is an “actuarially sound” rate for the types and extent of risks the association insures. For example, “there is no rate to pay for a year like 2008 where we had $2.3 billion in losses,” Oliver says. “You have to be able to pay for funding over a period of time in the form of bond and/or reinsurance.”

Because of legislative requirements TWIA operates with restraints that private insurers do not have. “No company would insure the concentration of risk we have in, say, Corpus Christi or Galveston,” Oliver says. “There really isn’t a rate for the kind of storm that could come in and literally give you a 100 percent or 90 percent or 80 percent of damage … for each risk that you have there.”

The vote by TWIA’s board of directors to file for the 5 percent increase is in line with Oliver’s position that the insurer’s rates will have to rise over time rather than in one fell swoop. Rate increases greater than 5 percent require approval by the insurance commissioner within 60 days.

Oliver explained that there is no legislative restriction as far as rate increases go, but there are political barriers. Insurance Commissioner Mike Geeslin, who has the ability to disapprove rate requests, has made it clear he’s not interested in hefty rate increases for TWIA at any one time. Unlike in Louisiana, where rates for that state’s Citizens Property Insurance Corp. by law must be 10 percent higher than those of private insurers competing in the same region, there is no requirement that TWIA’s rates exceed those in the private market.

“It’s very clear that we should have rates that are actuarially based and that they are not unfair, discriminatory, etc.,” Oliver says, adding that TWIA can request and use appropriate actuarial models. According to Oliver, the association is looking at raising “rates over time to a level that would as best as possible allow the private market to come in and cherry pick … so they could compete rate-wise and write some of the risks on an individual company basis.”

He added that TWIA’s own actuarial analysis indicates rates should rise “somewhere between 25 and 50 percent more than the rate that we have now. That would allow for enough profit to come in each year, build the reserve trust fund in good years; enough profit and enough balance to purchase reinsurance and to fund bonds and that sort of thing.”

Jerry Hagins, a spokesman for TDI, said it is premature to say whether the insurance commissioner will disapprove the recent rate request. Yet the commissioner’s approval is not needed.

For rate filings of 5 percent or less, the commissioner does not have to approve the rate. The commissioner does have 30 days from the rate filing to disapprove of it. And if the commissioner does not disapprove of the rate increase, it will automatically take effect, Hagins explained.

Ike Lingers

The hurricanes of 2008 wiped out TWIA’s catastrophe reserve fund and the company is working to build that up again. Claims and litigation still linger, mostly from Hurricane Ike, which hit near Galveston in September 2008.

Claims from Dolly, which made landfall near Brownsville in July 2008, are fairly well wrapped up, Oliver said, “with the exception of 15 or 20 lawsuits we’re working with. We get a stray claim in from Dolly once a month, or two a month over the last four or five months. So it’s pretty well put to bed. We’ve got it reserved and everything.”

Ike, however, is “a different story,” Oliver said. “We had just shy of 93,000 claims for Ike and about 8,300 for Dolly, so together around 100,000.”

The extensive and unusual losses from Ike and ensuing litigation over claims have been a struggle, he said. Almost two years after the event, TWIA continues to receive about 10 new, previously unreported, claims per week from Ike.

Litigation is “a big issue,” Oliver says. “There’s just a tremendous amount of plaintiff lawyer advertising, plaintiff lawyer interest. It’s affecting not just TWIA but also the insurance industry in general. And it’s resulted in a good deal of litigation.

“Candidly, we had some unusual and interesting type losses. We had 3,000 total losses, for example. And lots of folks didn’t have flood insurance. And while surge was the major contributor to those losses, without flood insurance or without enough flood insurance those folks are going come after us. So we’ve got litigation from those and we’ve got litigation on others for various reasons.”

A podcast interview with TWIA Executive Director Jim Oliver, “Wild Wind and Rain: The Texas Coastal Insurance Challenge,” is available online at https://www.insurancejournal.tv/videos/4189/.

Topics Lawsuits Catastrophe Natural Disasters Texas Claims Windstorm Pricing Trends