Texas Regulators Move to Take Over Windstorm Insurance Association

February 28, 2011

The Texas Department of Insurance has informed the director of the state’s property insurance company of last resort for wind in the state’s coastal counties that it is placing the organization under TDI’s administrative oversight.

In a Feb. 28, 2011, letter to Texas Windstorm Insurance Association General Manager Jim Oliver, Texas Insurance Commissioner Mike Geeslin laid out a number of reasons why regulators believe that TWIA management is not capable of operating the organization “in a safe and sound manner.”

Among other things, Geeslin said, information gathered by or submitted to TDI staff indicates that:

  • In multiple instances, an outside claims adjuster was paid for adjusting work that appears not to have been performed and that TWIA paid claims based on that outside adjuster’s recommendation;
  • TWIA management was aware of this and failed to report it in writing to the department’s insurance fraud unit within the required time frame after determining or suspecting a fraudulent insurance act had been committed; and
  • TWIA failed to adequately address issues identified through a financial examination and analysis conducted by TDI, which indicated a lack of adequate controls over accounting, personnel and material decisions affecting day-to-day operations, as well as communications with staff, the board of directors and the department.

Although TWIA’s continued operations will not be disrupted, Geeslin said the Association would remain under administrative oversight until “the Commissioner determines that TWIA has satisfied the specified requirements.”

Specifically, TWIA must:

  • Submit all senior or executive level personnel decisions to the commissioner’s representative for prior review and approval;
  • Submit expenditures for prior review and approval as requested;
  • Develop a plan to ensure complete, accurate and timely communications with its board of directors so that the board can meet its primary objectives as set out in the state’s insurance code, as well as other responsibilities.

Angel Garrett, TDI director of Rehabilitation and Liquidation Oversight was named to serve as the commissioner’s representative while the Association is under administrative oversight.

Under Scrutiny

Since 2008 and the aftermath of Hurricane Ike, 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, 2011, 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.

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 the Select Committee on Emergency Preparedness, and the State Representative for House District 24 in Galveston County. He said work-in-progress legislation would rein in defense costs by, among other things, limiting the window of time that TWIA insureds have to file lawsuits over claims.

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 reported. The number of TWIA claims from Ike had risen to 92,800 and 4,800 lawsuits had been filed. More than half of those lawsuits have been settled.

An emergency meeting of TWIA’s board of directors was called for the afternoon on Feb. 28. On the agenda was a discussion of the issues brought forward by TDI in the administrative oversight letter, as well as those in the letter from Saenz questioning TWIA’s personnel policies, and a review of Oliver’s status as general manager.

The board voted to begin the process of replacing Oliver.

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