Much Anticipated Windstorm Insurance Debate Begins in Texas

Texas legislators finally have jumped into debate over how to improve the troubled windstorm insurance system that serves as a last resort for hurricane protection along much of the Gulf Coast.

The House Insurance Committee, watched closely by coastal residents and insurance executives, began considering a slate of bills that propose changes to the system. It’s widely agreed the Texas Windstorm Insurance Association needs an update, especially after the financial toll of last year’s Hurricane Ike.

Gov. Rick Perry declared reform of the windstorm association an emergency item this legislative session, which ends June 1, just as the next hurricane season is beginning.

Revamping the windstorm fund has been on the minds of legislators since private companies began pulling away from offering property policies on the Texas coast after hurricanes Katrina and Rita in 2005. The state-chartered fund – replenished in large part by payments from private insurers – has become the only windstorm insurer for homes and businesses in 14 counties.

Rep. Todd Hunter, a Corpus Christi Republican, laid out proposals on assorted ways to potentially fund the windstorm insurance system. Among the ideas are general state revenue, federal economic stimulus money, the state’s Rainy Day Fund or assessments and fees on insurers or policy holders.

“To me, it’s a statewide issue,” he said, emphasizing his view that operation of the windstorm insurance association is not just a coastal concern.

Rep. Craig Eiland, a Galveston Democrat, put forth another windstorm association bill, as did Insurance Commission Chairman John Smithee, an Amarillo Republican. Smithee said he wants to ensure the solvency of the Texas Windstorm Insurance Association and make sure it operates on sound business principles.

The fund faces more problems than it did last session, when lawmakers failed to pass a reform bill.

Smithee noted that this year several hundred million dollars the windstorm association had in its trust fund are gone because of hurricane claims; that bonding is not as easy because of the national economy; and reinsurance – a backup insurance policy for insurance companies – is now likely to be more expensive.

Insurance companies that pay into the windstorm system can recoup some of their assessments through state tax credits over several years, ultimately affecting the state budget.

Lee Otis Zapp of Galveston, representing the Coastal Windstorm Insurance Coalition, told House members his group proposes to “keep it simple.” He outlined several ideas, including assessing insurance companies in a way that motivates more of them to return to voluntarily writing property policies along the coast.

“We’re from Texas, one Texas,” Zapp said. “We need help.”

At times, lawmakers sparred over how to spread risk around the state to pay for coastal damage. Smithee said currently TWIA policy holders with homes on the coast are not bearing the financial risk for claims that are paid for their damages, other than through their policy premiums, but residents in other parts of the state are.

The Texas Coalition for Affordable Insurance Solutions, a group backed by some insurance companies, said it wants to see TWIA immediately replenished in preparation for the 2009 storm season, but it also wants creation of intermediate funding for the next two to eight years and longterm comprehensive reforms.

Some of the windstorm insurance bills are HB3640, HB3648, HB3853 and HB4733.