Galveston County Daily News
June 11, 2007

Those who live on the Texas coast understand that their property is exposed to substantial risk from severe and devastating weather in exchange for calling this beautiful part of Texas home.

The Texas Windstorm Insurance Association is a state-created organization that provides Texas' coastal residents and businesses with wind and hail coverage when it is not available in the private insurance marketplace.

Every Texas homeowner, regardless of where they live, helps fund TWIA.

The problem is that TWIA is in financial trouble because it is woefully under-funded. It has the capacity in its basic financial structure to fund $1.03 billion in insured losses. A large storm along the coast is predicted to result in losses to TWIA of $8 billion to $10 billion.

Some people on the coast say a storm that depleted all of TWIA's funding wouldn't be so bad, because the association's current funding structure calls for unlimited assessments of funding - or fees - to be taken from insurance companies across the state to make up for the shortcomings.

Sounds great, right? Not so fast.

First, insurance companies will have to come up with a huge amount of cash up front to pay TWIA claims, even as they are trying to pay their own claims both on the coast and inland.

TWIA claims could bankrupt many companies at the very moment they are under maximum pressure to serve their own customers. Such bankruptcies are terribly costly to policyholders, other insurers and the state.

When an insurance company becomes insolvent, the responsibility of paying its assessment is shared among the surviving companies, which hurts their ability to pay their own customers' claims.

Second, insurance companies will recoup the assessments in the form of premium tax credits against the state's general-revenue fund.

Property- and casualty-insurance companies paid $472 million in premium taxes in 2005. With the tax credits made necessary when TWIA comes up short, that's almost $500 million a year out of the state's general fund, year after year, until the assessment is repaid.

All state programs, from road building to public education, would suffer from the loss.

State policymakers attempted to address this looming problem in the recent legislative session. They crafted HB 2960, broadly-supported legislation that would have used bonds to enhance the financial structure of TWIA by billions of dollars.

Although coastal residents would have been responsible for the payment of some bond obligations in the event of a storm, they still would have been protected by the rest of the state in the event of a major catastrophe.

Although the bill passed both the House and Senate unanimously, it was killed by procedural wrangling on the last day of the session.

With two full hurricane seasons facing us before the next regular session of the Legislature, Texas must now look for non-legislative solutions to TWIA's financial problems.

Proposals will likely include freezing or reducing coverage, tightening eligibility requirements, increasing rates and seeking alternate funding sources, such as reinsurance.

Otherwise, coastal residents will remain critically vulnerable to the potential for long-term hardship in the aftermath of even a single significant storm.

If TWIA remains broken, coastal property owners stand to lose the most. Doing nothing is not an option.

Beaman Floyd
Executive Director
Texas Coalition for Affordable Insurance Solutions, Austin

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