Texas Windstorm Insurance Association Seeks Solutions

With an ever-increasing number of policyholders, the Texas Windstorm Insurance Association is considerably under-funded in the event a major hurricane makes landfall in Galveston or Corpus Christi, according to Jerry Johns, president of Southwestern Insurance Information Service.

Last year TWIA had a $138 million deficit as a result of losses caused by Hurricane Rita and that would be a drop in the bucket had the storm have hit Galveston, he said.

The number of structures insured by TWIA is growing dramatically. In 2001 the association had 68,756 policyholders. As of July 31, 2006, this insurer of last resort had 112,000 residential and 10,500 commercial policyholders in 14 coastal counties and a portion of Harris County.

“In 1992 TWIA had about $5 billion exposure in these counties. At the end of July 2006 their exposure was $32.5 billion,” Johns noted.

“TWIA has $1.0 billion in funding, but when compared against a hurricane with the potential of causing $4-5 billion in losses along the Texas coast, something has to change. This would result in a shortfall which would have to be made up by the State of Texas,” Johns stressed.

Under the current TWIA funding mechanism, once the insurance companies have paid their initial assessments, the Catastrophe Reserve Fund has been depleted and the reinsurance that TWIA has purchased has been used, any remaining losses would be paid by unlimited assessments on insurance companies.

These unlimited assessments affect the General Revenue of the state of Texas because the insurance companies that pay them are allowed premium tax credits for the next five years. Simply stated, the State of Texas does not collect premium taxes and thus the funds necessary to operate the State of Texas will not be there, he said.

“TWIA’s funding mechanism was developed in the early 1990s when the association had about one-fifth the exposure they have today. By comparison, TWIA currently has an exposure of $13 billion in Galveston County alone,” Johns pointed out.

The TWIA Board has approved recommendations for changes in legislation which call for issuing $800 million in pre and post-event bonds to be paid for by a surcharge on property and casualty policies in Texas, excluding workers’ compensation, medical malpractice and health and accident policies.

To accomplish an improved funding arrangement would require the approval of the Legislature and they will not meet in regular session until January 2007.

“Finding a resolution to the funding of TWIA and reducing reinsurance costs are matters of extreme importance,” he concluded.

Source: Southwestern Insurance Information Service