Hurricane Harvey to take major toll on Texas insurer of last resort

Hurricane Harvey

State lawmakers would make lousy Weather Channel celebs.

Three weeks before Hurricane Harvey hit the Gulf Coast of Texas, 19 legislators sent a letter to the board members of the Texas Windstorm Insurance Association (TWIA), the state’s property insurer of last resort, citing projections of a “better than expected storm season in 2017.”

The letter advised against increasing premiums on the association’s 235,000 policyholders.

“By law, the Association is required to cover, at minimum, a 100-year season, a storm or series of storms with a 1 percent or less chance of occurring,” the letter said. “Effective June 1, 2017, to May 31, 2018, the Association provides a record $4.9 billion in total aggregate funding, representing $2.3 billion more than losses associated with Hurricane Ike…”

The lead signature comes from state Sen. Larry Taylor (R-Friendswood), who was part of a charge to reform TWIA after it was taken over by the state in 2011 amidst a flurry of ethical and leadership failings. Taylor, as well as co-signees Sen. Lois Kolkhorst (R-Brenham), Rep. Dennis Bonnen (R-Angleton), and Sen. Paul Bettencourt (R-Houston) did not respond to interview requests.

Raising premiums on policyholders is done to increase the pool of money available for claim payments. Higher rates mean an insurer, public or private, is more able to handle a major storm. TWIA’s coffers have become solvent and it appears the agency will be able to handle Harvey claims with little trouble.

But after paying the claims, then what?

“They will be able to handle this, but after they do, they will be left with nothing,” said Seth Chandler, a professor of insurance law at the University of Houston. “The rates are about 20 percent lower than what they need to be.”

TWIA has assured the public that it can handle Harvey claims and from 2011 to 2015, increasing its rates five percent each year before voting on no increase in 2016.

At its Aug. 1 meeting, the board of TWIA defied Taylor, his colleagues, and their weather predictions of a milder storm season in 2017 and voted to increase rates five percent for 2018.

The cumulative increase over the past six years has been around 34% for both residential and commercial policies. For an average TWIA policy with a premium of $1,500, this represents an increase of approximately $380.

Part of the hesitancy to increase rates may be an unintended consequence of legislation passed in 2015 increasing the number of TWIA board members from five to nine, adding more coastal members. Those members, representing the interest of customers with more exposure to storms, are more likely to resist rate increases, as they did in 2016.

The rate change approved in August, which takes effect January 1, barely appeases critics.

“There is no way TWIA can keep going after a storm like this, charging what it does,” said Josiah Neely, an analyst from the R Street Institute, a public policy group with an office in Texas. He said much of the reluctance among lawmakers, which promoted the letter urging the board to keep rates static, is based on “political can kicking.”

Constituents call their representatives when they get an increase, Neely said, and that moves the politician to push for something that will help him or her stay in office.

The rate increases are painful for consumers, Neely acknowledged.

“The rates are lower now but there won’t be enough money at some point and the bill will come due,” he said. “It will have to be made up by ratepayers or taxpayers all over the state.”

State Rep. Todd Hunter (R-Corpus Christi) introduced a measure during the special session this year that would limit rate increases to one percent annually, a bill that never got past the filing stage.

Hunter, who also signed the letter to the TWIA board urging it to hold rates steady, said there is a push and pull between the need for TWIA to have full funding and to have ratepayers.

“There needs to be this balance between the insured and TWIA,” Hunter said. “I wanted this bill to be a start of that discussion and to stop these automatic rate increases.”

If the agency fell too far into the red, statutes governing TWIA allow it to make an assessment against private insurers to help recoup losses, a cost that would no doubt be passed along to consumers.

TWIA insists it is fiscally sound and well prepared for any event. During a post-Harvey interview on Texas Public Radio, TWIA General Manager John Polak avoided directly addressing any potential deficiencies.

“Even during [Hurricane] Ike, which was more problematic for the organization back then in 2008, and we’ve made a lot of changes since then, we never ran out of money and were able to completely fulfill our financial obligations,” Polak said. He added that Harvey claims will not dry up the agency’s money — “we don’t expect to go anywhere near through that $4.9 billion” — and that he won’t worry about more funding until the start of next year.

“…So any other thing that occurs between now and 6/1 of next year, we still have whatever is remaining from that $4.9 billion number,” he said.

According to a document obtained through open records, TWIA estimated last year that a direct hit of a category 4 hurricane of Corpus Christi would expose the agency to $4 billion in claims, though, close to depleting its fund balance.

The state legislature in 2015 imposed a statute requiring the agency to maintain a $4.9 billion fund to cover all losses, be they from one storm or more.

TWIA has rebounded from a shoddily run group that paid fired employees severances that included pickup trucks and spent tens of thousands to fight public records requests to what many consider a well-prepared operation.

TWIA has made a “cultural transformation,” said Polak, who was hired in 2011. He insisted there is now “transparency in the activities and the approach that we take.”

He did not respond to an interview request.

The primary problem with the thinking of both the legislature and TWIA is that there are no mechanisms in place to protect against multiple storms in a season, said Mark Hanna, a spokesman for the Insurance Council of Texas, which represents private insurers.

“We took a good hit from Harvey but if Irma had come this way, there would be questions as to how strong TWIA is,” Hanna said. “That’s a huge question, as you have to prepare for more than one hurricane. We haven’t even hit the peak of hurricane season yet.”

The season runs from June 1 to November 30.

Steve Miller can be reached at [email protected].


  1. You want to feel sorry for an insurance company because our representatives couldn’t psychically divine the storm season this year after so many calm years. How much did they pay out last year or the year before….how much did they collect??.really. …once in a millennium events are just that–freaks of nature. No blame here. Just brainstorm and find solutions. How about a five year temporary premium increase to offset their losses. SMH. Pointing fingers is less than helpful

  2. If everyone was required to carry it across the State rather they are in a flood zone or not, if they still owe on their home, this would not be an issue.
    80% were not covered. That would have increased the surplus sitting there x’s 4.

    • It goes by what Tier rating your county is rated in. Part of Houston is in Tier 1 and part is in Tier 2. The further inland you are the Higher Tier rate you have. Tier 1 counties require windstorm and better construction in rebuilding. Many insurance companies will not write in Tier 1 counties that’s how the TWIA came to be. For inland counties windstorm, Hurricane and Hail are part of your regular Homeowners policy. But in Tier 1 counties, Hurricane, windstorms and covered under your TWIA policy. Flood is a separate Flood Policy…

  3. We’ve had TWIA and FEMA since 2004. TWIA’s rate has gone from $1400 to $5400 in 2017, FEMA’s rate has increased from $300 to $500. Home’s totaled due to wind only, no flooding. TWIA should pay the insured amount and restrict rebuilding.


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