The Texas Windstorm Insurance Association (TWIA) wants to raise rates by 10 percent on policyholders next year, the largest increase allowed by state law, but the agency is facing a backlash from lawmakers and special interest groups in its coverage area of 14 counties.
A rally this week, led by state Rep. Todd Hunter (R-Corpus Christi), bemoaned the proposed increase, which requires approval from the Texas Department of Insurance after a comment period that ends in October.
An online petition claims the move to hike rates is “insensitive and unnecessarily cruel” in the wake of Hurricane Harvey. Additionally, seven state lawmakers from coastal areas sent a letter last month to TWIA board Chairman Joshua Fields, urging the agency not to increase rates.
Chambers of commerce in the Corpus area say the rate increase will hinder local businesses’ struggle to get back on their feet after the huge hurricane.
Officials for TWIA, which provides wind and hail policies to property owners in storm-prone regions, say the agency needs to refill its coffers, to be sure it can pay claims if another massive storm hits.
“You would think that TWIA would come to the state legislature and say, ‘Here’s the reason we are going to ask for rate raises,’ ” Hunter said in an interview. “We have heard no reasons for this increase and no one has come to visit with us. “
However, TWIA’s need for higher rates has been clear to many for several years — not only to make sure the association will be able to cover claims in the wake of a major storm, but also as part of a long-term strategy to convince property holders to give up their TWIA coverage and buy insurance from private companies.
Premiums from its roughly 214,000 policy holders provide the cash reserves from which TWIA pays out claims when big storms hit. In a worse case scenario, when that stash runs out, the agency can turn to state lawmakers to cover the costs, a move that would likely draw political and public opposition.
More covertly, TWIA could seek to recoup its shortfall by spreading the pain statewide — through a mechanism that would have property owners in other parts of the state paying an insurance surcharge to help cover the problems of policyholders on the coast.
TWIA also has the ability to issue bonds, as it did in 2014, to cover another situation in which reserve funds had sunk too low.
The TWIA was created by the legislature 1971, after Hurricane Celia, to help property owners who could no longer afford the increasing costs of private insurance. However, in recent years, the agency, like its counterparts in other states, has been trying to reduce property owners’ reliance on government subsidized coverage. The association has increased rates almost every year since 2010.
Despite those efforts, some say TWIA’s rates are too low to keep it solvent if another major storm hits this year. The widespread property devastation from Harvey was equally damaging to TWIA fund reserves.
“TWIA is charging inadequate rates for both residential and commercial properties,” said Joe Wood, vice president of state government relations for Property Casualty Insurers Association of America in Texas, which represents commercial insurers.
TWIA’s steady increase in its rates has helped reduce its policyholder numbers by 44 percent since 2014. The association has increased rates by 5 percent every year but one since 2010.
However, Wood and others believe the state hasn’t done enough to reduce property owners’ reliance on TWIA. Many coastal states have been working for several years to move people from quasi-public insurers like TWIA into the private insurance market by increasing premiums. The intent is to lessen the burden on the state insurer and mitigate the potential for rate increases to all property insurance holders.
Florida has been one of the most aggressive in reducing reliance on quasi-public insurers. In six years, its policyholder numbers have dropped by 68 percent. In Louisiana, the drop has been about 78 percent since 2008.
“Other states [besides Texas] do a much better job to make sure that the state’s insurer is truly the insurer of last resort,” said Josiah Neely, an analyst from the R Street Institute, a Washington, D.C.-based public policy think tank. Neely said that Texas’ dip in policies in the last year “is encouraging … but other states are aggressive in moving people from the state rolls to the private insurer, whereas in Texas it’s voluntary.”
TWIA spokeswoman Anna Stafford said the association has no idea what private insurers are charging as it considers its own rates. She declined to comment further and said TWIA executives were unavailable for an interview.
At the same time that TWIA has been steadily increasing rates and trying to reduce its policyholder rolls, the agency has been dealing with other problems.
The lack of communication that Hunter complained of is part of a culture at TWIA, which has been dogged by transparency issues at least since 2010, when it paid $545,000 in outside legal fees to handle public records requests and the agency’s mismanagement of public meetings.
In 2011 the state took oversight control of the agency as it was “in a condition that makes its continuation in business hazardous to the public or to its policyholders, as it appears that its management does not have the experience, competence or trustworthiness to operate TWIA in a safe and sound manner” according to a letter by then-Texas Insurance Commissioner Mike Geeslin.
The trouble began in the wake of Hurricane Ike and included revelations that the agency was misspending funds in various ways, including allowing a fired worker to take a pickup truck as part of his severance pay and failing to report fraud.
Steve Miller can be reached at [email protected].