Stakeholders urge reform of Texas Windstorm Insurance Association

For many Texas residents living near the coast, the only way to get wind and hail insurance is through the Texas Windstorm Insurance Association (TWIA), the state-run insurer of last resort. According to, a service of the Texas Department of Insurance, TWIA coverage is available in the state's 14 coastal counties and around Galveston Bay in Harris County.

To qualify for coverage, structures must be inspected and meet minimum standards for wind resistance. Residents of certain areas may also be required to purchase flood insurance before they are eligible for coverage under TWIA. Renovations or additions can affect eligibility for coverage, and new policies cannot be purchased when there is a hurricane in the Gulf of Mexico.

TWIA under pressure despite improving finances

Texas Public Radio (TPR) notes that the TWIA has been facing heightened scrutiny from policy makers since it ran out of cash after two hurricanes hit Texas in 2008. However, the insurer eventually settled all pending claims and litigation and its financial situation has improved considerably as a result of operational changes mandated by the legislature and a string of relatively calm hurricane seasons.

TWIA recently announced that it successfully raised $500 million through a bond issuance conducted by the Texas Public Finance Authority. According to Chief Financial Officer Pete Gise, this gives the insurer $3.85 billion in total funding for the 2014-2015 catastrophe season. It has also purchased $1.45 billion in reinsurance.

Nonetheless, questions remain about the organization's long-term viability, and it faced a fresh controversy in 2013 when a series of emails between senior administrators came to light during a lawsuit involving claims of racial discrimination. According to Bloomberg, TWIA disclosed an operating income of nearly $200 million in 2013 and a loss of $172 million in 2012.

What would happen if TWIA failed?

In a March interview with TPR, University of Houston insurance law professor Seth Chandler explained that "Texas is not legally on the hook when TWIA goes bankrupt," but the state government would presumably take extraordinary measures to helped affected coastal property owners in the aftermath of a disaster.

"Now, what would we do if we saw some failure of TWIA, would there be some special tax that was enacted on Texans or people on the coast? Nobody knows, but the problem is going to be that that is a terrible environment to make sensible decisions, which is after the calamity hits," Chandler said. "The better process would be to address this before the problem hits so that homeowners and businesses on the coast can have some assurance that they are actually going to get paid in the event of a disaster."

Lieutenant governor calls for legislation to shift windstorm policies to private carriers

Conservative politicians have argued that the state government should simply not be involved in the insurance business. At a September 9 meeting of the Texas Senate Business & Commerce Committee, Lieutenant Governor David Dewhurst urged lawmakers to begin making plans to wind down the TWIA and shift policies to private sector insurance carriers.

"Should Texas, God forbid, endure two targeted Category 5 hurricanes in a single year, the impact on the state budget from claims on TWIA's $77 billion in coverage could be devastating," Dewhurst said in a statement released after his appearance at the Senate hearing.

The lieutenant governor told senators that the risk associated with the state-run program is becoming increasingly serious. In 2003, TWIA only had about 85,000 policies worth $16 billion. Both figures have more than tripled since then, due to coastal development driven by a booming Texas economy.

TPR reported that the lieutenant governor outlined a plan to pass relevant legislation in 2015 and finish moving policyholders to private insurers within five years, although he left the specifics to the Senate. Dewhurst's statement said he had asked the Business & Commerce Committee to consider a range of scenarios for reforming TWIA, "which could include phasing it out."

The state-run insurer has already been working to reduce its exposure. TWIA recently completed a feasibility study for a program that would allow private insurers to browse its risk pool and absorb select policies after reviewing underwriting data. Carriers have indicated that they are interested in serving this market, but face challenges with setting workable rates.

Insurers providing coverage in high-risk areas have an especially critical need to ensure that their policies are based on accurate insurance-to-value ratios. The leading provider of web-based property valuation solutions can help by calculating accurate replacement cost estimates that account for local variations in building costs.