TWIA approves 5 percent increase for coastal residents

BROWNSVILLE — The board of directors of the Texas Windstorm Insurance Association, the coast’s windstorm and hail insurer of last resort, on Tuesday approved a 5 percent rate increase for policyholders effective Jan. 1, 2018.

The rate hike covers new and renewal commercial and residential policies. The vote was 5-3 with one board member absent, and took place during TWIA’s regular quarterly meeting, held in Galveston. TWIA had imposed a 5-percent rate increase each year from 2011 to 2016, but last year voted not to impose a rate hike for 2017.

The board’s decision to raise the 2018 rate was in keeping with a recommendation from the association’s six-member actuarial committee, which voted unanimously to approve the recommendation based on an analysis of TWIA’s finances.

Jerry Fadden, TWIA’s chief financial officer, said during Tuesday’s meeting that residential rate indications for 2017 show a 30 percent “rate inadequacy,” representing a 4 percent deterioration since 2016. TWIA’s commercial rate indications show a 28 percent rate inadequacy compared to 21 percent last year, he said.

“Rate adequacy” refers to the minimum rate insurers need to set to cover operating expenses and claims obligations and make a reasonable profit. In TWIA’s case, however, net gains by law are transferred each year into the Catastrophic Reserve Trust Fund, an account maintained by the Texas comptroller, to cover future catastrophic losses.

Fadden said TWIA’s rate inadequacy was due in part to losses from claims, but also to things like “adverse selection” stemming from TWIA’s ongoing depopulation initiative, which aims to reduce the number of policies by helping TWIA policyholders find coverage in the private market but which also leaves TWIA with a higher percentage of higher risk policyholders.

TWIA is meant as a “residual market” property insurer along parts of the coast where private windstorm and hail coverage isn’t available. TWIA’s coverage area encompasses Cameron and Willacy counties, along with 12 other first-tier coastal counties and a portion of Harris County.

TWIA was created by an act of the legislature in 1971 after private insurers exited the coastal market en masse after suffering heavy losses from Hurricane Celia in 1970.

Damage claims and lawsuits stemming from Hurricane Ike in 2008 left TWIA in an unsustainable financial situation exacerbated by mismanagement. TWIA was placed under administrative oversight in 2011 over worries it wouldn’t be able to cover claims from a future catastrophe.

Tuesday’s decision came despite a written plea from state Sen. Larry Taylor, R-Friendswood, and Rep. Wayne Faircloth, R-Galveston, both of whom represent Galveston County, to TWIA chairman Joshua Fields and board members to reject the rate hike.

In a letter, the pair noted that the legislature had “gone to great lengths” during the past five sessions to reform TWIA to ensure greater financial stability, while policyholders have already endured a 34-percent rate increase from 2011 to 2016.

Faircloth and Taylor took TWIA to task for imposing rate-making standards as if it were a traditionally funded private insurer, on top of strict rules the legislature already has imposed for how TWIA covers its financial obligations.

The letter noted that, effective June 1, 2017, to May 31, 2018, TWIA provides $4.9 million in aggregate funding — $2.3 billion more than losses from Ike, sufficient for 99 percent of all possible storm and in excess of the statutory minimum funding requirement.

Taylor and Faircloth wrote: “As an insurer of last resort, 234,861 policyholders would be affected by a rate increase in which our constituents and your customers would have to further determine whether or not they should forgo coverage and hope for the best or perhaps forgo another necessity. Either scenario is unacceptable.”

State Rep. Rene Oliveira, D-Brownsville, chairman of the House Committee on Business and Industry, said in an email that the rate hike will be “huge hit” on homeowners and business owners, and will negatively impact school districts and other public entities. He also complained that the windstorm insurance burden is solely on the backs of coastal property owners, rather than being spread out across the state.

“We have been paying gradual coastal premium increases already,” Oliveira said. “The entire state benefits from the economic activity of the coast through tourism, our ports, and our refineries. The burden should be spread out fairly and accordingly. I am very disappointed that the TWIA board continues to single out coastal ratepayers.”