Windstorm Insurance
The Texas Windstorm Insurance Association:
Challenges and Solutions
The Texas Windstorm Insurance Association is seeking solutions to pay losses and to avoid compromising the
Texas General Revenue fund in the event a major hurricane makes landfall in Galveston or Corpus
Christi. Three years ago, during October and November of 2005, TWIA paid $160 million in losses as a result of losses caused by Hurricane Rita and
that would be a drop in the bucket had the storm have hit Galveston.
The number of structures insured by TWIA is growing dramatically. Growth has accelerated throughout 2007.
- In 2001 the association had 68,756
policyholders.
- As of September 30, 2007, this insurer of last resort had 191,942 residential and 15,113
commercial policyholders in 14 coastal counties and a portion of Harris County.
- In 1992 TWIA had about $5 billion exposure in these counties.
- At the end of September 2007 their
exposure was approximately $56 billion.
- This is a $21 billion increase since October 2006.
TWIA has $1.0 billion in funding, but when compared against a hurricane or multiple hurricanes with
the potential of causing $4-5 billion or more in losses along the Texas coast, something has to change.
This would result in a shortfall which would have to be made up by the State of Texas.
Under the current TWIA funding mechanism, once the insurance companies have paid their initial
assessments, the Catastrophe Reserve Fund has been depleted and the reinsurance that TWIA has
purchased has been used , any remaining losses would be paid by unlimited assessments on insurance
companies.
These unlimited assessments affect the General Revenue of the state of Texas because the insurance
companies that pay them are allowed premium tax credits for up to 20% of the assessments over the next 5 years. Simply stated, the State of Texas would not be able to collect full premium taxes and thus the
funds necessary to operate the State of Texas would be severely impacted.
TWIA’s funding mechanism was developed in the early 1990’s when the association had one 7th the
exposure they have today. TWIA currently has an exposure of $15 billion in Galveston County alone.
The TWIA Board has approved recommendations for changes in legislation which call for issuing pre
and post-event bonds to be paid for by a surcharge on property and casualty policies in Texas, excluding
workers’ compensation, medical malpractice and health and accident policies.
The legislature attempted to create an improved funding system for TWIA during the 2007 legislative session. Unfortunately, the legislation was killed by procedural wrangling at the end of the session, leaving Texas critically vulnerable to a major storm.
Finding a resolution to the funding of TWIA and reducing reinsurance costs remain matters of extreme
importance.
Sources:
Southwestern Insurance Information Service
Tele: (512) 795-8214
http://www.siisinfo.org
Texas Windstorm Association
Tele: (512) 899-4900
http://www.twia.org
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