The Texas Windstorm Insurance Association is broke, in debt and facing a shrinking revenue pool, according to the agency charged with reviewing the effectiveness of such state programs.
If legislative changes aren’t made to the program, the association’s policyholders will be left alone to weather future storms, the Texas Sunset Advisory Commission wrote in a report released last week.
The scathing report comes as elected leaders are near a return to Austin for a new legislative session. While the windstorm association won’t be abolished if legislators don’t act, the insurer will continue to be unsustainable if changes aren’t made, according to the report.
The state created the windstorm association in 1971 to act as the insurer of last resort for people in coastal counties that can’t get coverage from private insurance companies. Most private insurers left the windstorm market on the upper Texas coast long ago. In 2017, the windstorm association had about 240,000 policies covering more than $60 billion in property value, which includes residential, commercial and government-owned properties.
The association is funded by the premiums it collects from policyholders.
After Hurricane Harvey passed over the Texas coast in August 2017, the association’s reserve took a massive hit. More than 76,000 policyholders made claims after the storm, to which the association paid $1.7 billion. The association had to use $743 million of its $750 million reserve for catastrophes to pay off the claims, officials said.
Earlier this year, the association attempted to raise its premiums by 10 percent for both commercial and residential policyholders. Texas Gov. Greg Abbott in October blocked that attempt and said legislators should be allowed to try to reform the association before rate hikes go up again.
The sunset commission’s report gives some ideas about how legislators might go about trying to change things.
The association’s two mandates — to insure properties that can’t be insured elsewhere, and to survive mainly off of premiums — conflict with each other, according to the Texas Sunset Advisory Commission report.
“The Legislature has given TWIA opposing mandates that are driving TWIA to the brink of financial extinction,” the commission wrote. “TWIA’s revenue from premiums is not enough to pay future claims, meaning TWIA will likely have to go into more debt if there is another hurricane — further increasing costs to policyholders.”
To fix that, legislators would need to decide whether to keep the association as an affordable insurer of last resort, or allow it to act as a free-market insurance company that could more freely adjust its premiums.
The commission also recommended that the association be required to automatically renew policies, to improve its post-hurricane communication plans and to require association board members to publicly disclose conflicts of interest.
Windstorm reforms are likely to be on the top of the list for local legislators when the session begins in January.
During a legislative preview event last week, state Rep. Greg Bonnen said there would be a bill proposing changes to the association.
“We’ll have to be very vigilant as that bill makes it through the legislative process, because anything could happen,” Bonnen said.
At the same event, state Sen. Larry Taylor added that the presumed next Speaker of the House Dennis Bonnen, a Brazoria County Republican, also likely would be interested in addressing windstorm issues.
“His constituents are involved in windstorm, so that’s going to be good for us,” Taylor said.
As of Friday, no bills have been pre-filed in the Legislature to address changes to association.