Texas Windpool to Remain Under Administrative Control

By | May 17, 2012

Texas’ insurer of last resort for wind and hail in coastal counties will remain under the administrative control of state regulators and it will file for a 5 percent rate increase in August to become effective Jan. 1, 2012.

At a meeting on May 1, Texas Windstorm Insurance Association’s board of directors declined, however, to vote on a proposal from the association’s actuarial underwriting committee that the board file in June for an overall rate increase of 4.7 percent with an effective date of Oct. 1.

That proposed rate increase would have varied somewhat within TWIA’s coastal territories — increasing or decreasing according to the risk — while keeping within an 8 percent limit of variation within any one county.

By statute, TWIA is required to make a rate filing in August, even if no change is requested. The board decided to file for a 5 percent overall rate increase with an effective date of Jan. 1, a practice it has followed for the past two years and intends to continue until its rates are considered adequate.

The possibility of a filing for an additional rate increase, also to be effective Jan. 1, remains. The board decided to take up that proposal again at another meeting later in the summer.

Currently the board is without a public member from a coastal county. In light of that fact, several officials from Gulf Coast counties, including Rep. Craig Eiland from Galveston, testified against the 4.7 percent rate filing with territorial variances.

“There is no coastal member at large here. … I think it would not be well received to not have somebody here yelling and screaming on our behalf before you took this kind of dramatic action,” Eiland said.

TWIA was overwhelmed with claims resulting from Hurricanes Ike and Dolly in 2008, which wiped out reserves, and the insurer was inundated with lawsuits over its claims handling.

The Texas Department of Insurance placed TWIA under administrative oversight in early 2011 due to an ongoing series of problems at the insurer and questions over the quality of its management.

Speaking at the May 15 board meeting, Texas Insurance Commissioner Eleanor Kitzman said TDI’s oversight of the insurer “will continue for some time in the future.”

Kitzman proposed earlier this year to begin an investigation into whether and how to restructure TWIA. In a February 2012 announcement regarding possible restructuring, Kitzman said she believes TWIA’s present structure is unsustainable.

“TWIA was supposed to be the market of last resort for the 14 coastal counties that comprise Tier 1, but that is not the case anymore. In 2001, TWIA’s market share was 17.9 percent. In 2010, it had more than tripled to 57.2 percent and it continues to grow,” Kitzman said in February.

Technical Advisory Working Group

After issuing a request for proposals (RFP) seeking assistance in identifying, evaluating and implementing restructuring options to reduce TWIA’s exposure and improve service to policyholders, TDI hired Alvarez & Marsal Insurance Advisory Services (AMIAS) to develop and evaluate restructuring plans.

Now, Kitzman told TWIA’s board, TDI is soliciting participants for a technical advisory working group (Advisory Group) to assist Alvarez & Marsal in that task.

TDI is “looking for people who are familiar with TWIA’s legislative an operational framework, people who have a solid understanding of the Texas insurance regulatory environment, and a good working knowledge of insurance legal and financial principles — and the more knowledge and experience of windpools, catastrophic risks the better,” Kitzman said.

Skill sets and qualifications for participation in the advisory group include: claims, underwriting, policy administration, reinsurance, distribution, accounting, technology and infrastructure, and other back office skills.

Kitzman said there is no set number of people that would be included in the group. It would include “as many as we need to cover all the technical expertise bases that we need,” she said.

“Restructuring is critical to TWIA’s ongoing operations so we don’t keep digging a deeper hole for ourselves. There will be no eminent decisions on the administrative oversight,” she said. “The working relationship between TWIA and TDI is workable and is not so onerous that people aren’t able to do their jobs. Obviously we can always communicate better and we will continue to work on that.”

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