The Texas Windstorm Insurance Association is “broke, in debt and facing a shrinking revenue pool,” according to a review of the beleaguered agency by the state’s Sunset Commission.
The agency, funded primarily by premiums assessed against property owners in 14 hurricane-prone counties, does not charge enough to cover its claims, yet raising rates “may make windstorm insurance too expensive for some coastal residents,” the report says.
TWIA is referred to as the insurer of last resort for property owners who can’t get coverage from a private insurer.
The report adds that Hurricane Harvey last year revealed basic problems in TWIA’s structure that legislators have failed to fix, despite massive TWIA reform by lawmakers after Hurricane Ike in 2008, when an average TWIA claim took 250 days to pay.
Each session, tweaks are made to TWIA’s procedures in hopes to shoring up the agency before the next big storm. The report strongly suggests those tweaks haven’t addressed TWIA’s most basic problem.
TWIA’s conflicting mandates — to provide reasonably priced insurance to property owners who can’t get it elsewhere while saving enough money to pay out when a storm hits – is squeezing the agency, the report said.
In dire cases of failure by a state agency, the Sunset Commission can recommend abolishing it. Most agencies have a built-in re-evaluation date after which, if the evaluation reveals big enough problems, lawmakers can elect to get rid of the agency. TWIA was created without such a date. The writers of the report said they cannot endorse continuation of TWIA because its current structure is “too uncertain.”
TWIA has struggled with both public perception and fiscal troubles since it went into state receivership in 2011 after a series of articles by the Texas Watchdog news organization revealed the agency was riddled with dubious ethical and financial conduct. The agency was paying for claims that had no merit, overpaying for some that did, and in some cases handing out pickup trucks as severance bonuses.
The TWIA press office did not return a call seeking comment for this story.
State lawmakers have passed a number of reforms since the state takeover, including a comprehensive overhaul of ethics and spending at the agency.
In August, the agency elected to increase premiums 10 percent for 2019, the maximum allowed by statute. The move was publicly opposed by a group of lawmakers, who insisted their constituents could not take the increase.
The rate increase has to be approved by the state’s commissioner of insurance. Last month, the increase was put on hold to give lawmakers a chance to address the funding deficiency in the upcoming session.
“We will be expected to do something about this, and I think the rate structure will have to be adjusted,” state Rep. Todd Hunter, R-Corpus Christi, said. He was one of seven lawmakers to sign a letter to TWIA board members in July urging them to refrain from the rate increase. “It’s premature to say exactly how these rates will be affected but they will be addressed.”
The Sunset Commission’s suggestions for lawmakers include amending the complex depopulation program (under which TWIA policy holders are encouraged to move to private insurers, reducing the burden on TWIA) to make it simpler, as other states have done.
The process of reducing TWIA insurance rolls has been slow compared to other states.
Several commercial insurance agencies participated in a 2015 effort to cut down on the number of owners relying on the coverage. One, United Property & Casualty Insurance, which has been part of similar efforts in other states, ended its Texas participation because of “lower-than-expected participation.”
The Sunset Commission is also urging an end to TWIA’s long standing aversion to transparency, particularly among its nine board members. The report asks that board members, who are appointed by the state’s insurance commissioner, be trained in basic good government accountability practices including disclosure of potential conflicts of interest.
TWIA over the years has particularly battled with the public over access to records and meetings. The agency in 2010 paid $545,000 in outside legal fees to process public records requests and respond to the agency’s mismanagement of public meetings.
Some of these problems were addressed in a substantial overhaul of the agency’s practices in a bill passed in special session in 2011.
Another bill filed in 2011 addressing potential conflicts among board members did not pass.
More fixes are sure to be attempted in the new session, said Mark Hanna, a spokesman for the Insurance Council of Texas, which represents insurance companies. But they may not be the meaningful changes urged by the Sunset Commission.
“Everyone has their own priorities,” Hanna said. “You have folks in West Texas and the Panhandle for whom TWIA is not a primary concern. When you look at what Harvey did to TWIA, it really wiped them out. We may not be able to wait nine years before another major hurricane this time.”