September 3, 2008

AT HURRICANE SEASON MIDPOINT, ANOTHER STORM COULD THREATEN
STATE’S GENERAL REVENUE FUND, INSURANCE MARKET STABILITY
Dolly, Edouard and their fallout on the entire insurance market — plus any other storm that might hit Texas in the coming months — should only underscore the necessity for lawmakers to help maintain a strong insurance marketplace and pass solid TWIA reforms.

Thankfully, Texas was spared a direct hit by Hurricane Gustav. However, even before Gustav came ashore, the Texas insurance market and the Texas Windstorm Insurance Association already had weathered significant blows, as the following op ed published in the San Antonio Express-News discusses. And, with other storms already forming out in the Atlantic, the worst could be ahead for our state’s windstorm structure, which is in need of reform. As discussed below, the current structure is not only inadequately funded for coastal residents, but also financially threatens all Texans with higher insurance rates, less availability and lost tax revenue.

Texans are still busy with repairs in the aftermath of Hurricane Dolly and Tropical Storm Edouard. Fortunately, the damage from those storms was far less severe than it could have been. Unfortunately, their financial aftermath is sending reverberations throughout the Texas insurance market.

While some in the Lower Rio Grande Valley did suffer tremendous losses from Dolly, the hurricane did not cause the devastation possible from a hurricane striking the Texas coast. And Edouard caused little damage on the other end of the coastal bend.

But these storms were strong enough to dip into the pocketbooks of every Texan with a homeowner's insurance policy. With the second, traditionally more severe half of the hurricane season to go, another storm could create real havoc in the state's insurance market and with the state's general revenue fund.

The Texas Windstorm Insurance Association, or TWIA, the state's insurer in coastal counties, received the majority of claims. Claims from the two storms wiped out the approximately $50 million TWIA had on hand.

Once that was gone, TWIA assessed property and casualty companies operating in Texas $100 million to pay its claims. TWIA was then forced to dip into its Catastrophe Reserve Trust Fund, a fund built up over years to pay excess losses.

Another storm this season could create a financial disaster not only for TWIA, but for the insurance market across Texas. Under TWIA's funding structure, once the dwindling Catastrophe Reserve Trust Fund is drained, future storm claims will be paid by a combination of assessments on all homeowner's insurance companies, reinsurance and, ultimately, tax revenue affecting the state general fund. Though the system is complex, the potential result is clear: a broke TWIA, a disrupted general marketplace and a potential loss of state tax income of as much as $130 million annually.

The system needs reform. The current structure is not only inadequately funded for coastal residents, but also financially threatens all Texans with higher insurance rates, less availability and lost tax revenue.

Though the Legislature overwhelmingly supported TWIA reform in the 2007 session, time ran out before the bill was finally passed.

Currently, the state's Sunset Commission is studying TWIA as part of its review of the Texas Department of Insurance. Sunset recommendations often are the basis for subsequent legislation.

The Texas Coalition for Affordable Insurance Solutions agrees with the Sunset staff report which says TWIA stands at a “critical juncture.” TWIA operates under a flawed, insufficient statutory structure that makes it extremely vulnerable to both weather losses and political pressures, and prevents the board from employing many sound business practices.

Texans need a strong insurance market and good coastal policy to deal with our historically severe weather. This year has already been tough, with over $1.08 billion in claims in the second quarter alone, tops in the country.

Dolly, Edouard and their fallout on the entire insurance market — plus any other storm that might hit Texas in the coming months — should only underscore the necessity for lawmakers to help maintain a strong insurance marketplace and pass solid TWIA reforms.

Visit www.tcais.org for more information.