The Galveston County Daily News

A bill up for hearing in the Texas Legislature would make thousands of vacation houses ineligible for windstorm insurance coverage, sharply limit the coverage available on all property and increase premium prices, opponents say.

HB 911, filed this week by state Rep. John Smithee, R-Amarillo, who chairs the House Insurance Committee, would allow only primary residences to be covered through the Texas Windstorm Insurance Association.

Such a change in the law would strip about 40,000 vacation and second homes of coverage through the association, also known as the windstorm pool, opponents say.

State Rep. Larry Taylor, R-Friendswood, and state Rep. Craig Eiland, D-Galveston, say they intend to fight the bill. Taylor is a member of the insurance committee.

“The bill as filed is unacceptable for our coastal citizens,” Taylor said. “Eiland and I are working with other coastal representatives to make sure the final version of this bill will support the continued economic vitality of our area.”

Market Buster

The windstorm pool is insurer of last resort for 227,000 residents and businesses in 14 coastal counties.

As private insurers have fled risky coastal markets, the association is the only place to turn for windstorm insurance, particularly on the island where a second-home market is vital to the economy.

Without insurance, obtaining mortgages would be impossible, which would bring the second-home sector of the real estate market on the island and other parts of the county, including Bolivar Peninsula, to a grinding halt, said Lee Otis Zapp Jr., president of advocacy group Galveston Windstorm Action Committee.

“No insurance, no loans. No loans, no buying. Real estate activity dies,” Zapp said.

Less Coverage

But Smithee’s bill also would have repercussions for people with association windstorm insurance on their primary residences.

Smithee has said the Legislature has done too little to deal with potential hurricane losses and has pointed to the coast as a reason for higher homeowners insurance bills.

His bill calls for sharp cuts in what the association can cover, even on existing policies.

The bill would reduce residential coverage to $250,000 from about $1.7 million; to about $2.2 million from about $4.2 million for government buildings; and “any other structure and contents from $4.2 million to $1 million.” The “any other” clause includes commercial property, Zapp said.

Investment in parts of the county would shrivel should the bill become law, Zapp said.

“It’s just death, the way I call it,” he said.

Higher Premiums

Premiums also would skyrocket under Smithee’s bill, which would require the association to buy at least $2 billion in reinsurance, Zapp said.

The windstorm association last year spent $184.1 million to buy $1.5 billion in reinsurance to underwrite its own potential catastrophic losses. The cost of reinsurance is passed on to policyholders.

The bill would make thousands of policyholders ineligible for insurance through the association, leaving fewer policyholders to cover the skyrocketing costs, Zapp said.

Smithee did not return phone calls.

Differences about how to best bolster funding for the windstorm pool have been a source of tension between stakeholders for years. As developers flock to the coast and private insurers flee, the pool’s exposure has risen to $65.5 billion, with more than $18 billion in Galveston County.

Texas lawmakers in May 2007 ended the state’s 80th legislative session without agreeing on a bill that would have increased association funding by about $6 billion through premium increases and bonds.

In February, Gov. Rick Perry gave lawmakers a mandate to fast-track legislation shoring up funding for the windstorm association, which saw its reserves depleted by Hurricane Ike, which struck the upper Texas coast Sept. 13.

The windstorm pool had about $2.1 billion available to pay claims and has paid out about $905 million in Ike claims so far.

The windstorm association is made of all casualty and property insurers in Texas.

State law allows the windstorm association to assess member companies if the pool’s funds are depleted. But some assessments are offset by tax credits, which reduces the amount paid by insurers to the state’s general fund, meaning taxpayers across the state are on the hook.

Smithee and other inland lawmakers resent that their constituents are liable for catastrophic hurricanes.

Zapp’s group and other coastal stakeholders are planning a trip to Austin on Tuesday when Smithee’s bill is scheduled for hearing.

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At A Glance

What: Texas House Insurance Committee hearing about sweeping changes to Texas Windstorm Insurance Association coverage.

Where: Room E2.026, Capitol House Committee Room in the Capital Extension, 1400 Congress Ave., Austin, Texas

When: 2 p.m. Tuesday

Call: Lee Otis Zapp Jr. of the Galveston Windstorm Action Committee, 409-744-6655.