David Yates Aug. 23, 2016, 11:49am


AUSTIN - On Aug. 2 the Texas Windstorm Insurance Association Board of Directors voted not to raise windstorm rates for either residential or commercial policyholders along the Texas coast.

The Insurance Council of Texas believes the board’s decision does not protect the financial security of TWIA for its policyholders.

For several years, actuarial studies have shown that TWIA rates have been inadequate, according to ICT.

In past years, the TWIA board has approved 5 percent increases as a means of closing the gap while at the same time avoiding larger rate increases in one year.

This year, the new board did not approve even a 5 percent increase despite recommendations from TWIA’s actuary that rate levels needed an increase, a press release states.

At the August 2 meeting, Jim Murphy, a senior actuary for TWIA, testified before the board, saying TWIA residential rates were 26 percent short of becoming actuarially sound, and commercial rates were 21 percent short.

Meaning, TWIA’s windstorm policies are below what was actuarially determined to be needed to pay for non-hurricane losses, hurricane losses, expenses, including amounts required to be paid every year for bonds issued to TWIA, and reinsurance.

In addition, TWIA is required to have a reasonable margin for contingencies that is normally placed into the Catastrophe Reserve Trust Fund.

In 2015, there were several non-hurricane events, such as hailstorms, along the Texas coast that caused damage to property insured by TWIA.

The amounts TWIA paid for these losses essentially used all of the funds from a 5 percent rate increase in 2014, the press release states.

“TWIA’s rates are required by law to be adequate and based on sound actuarial principles,” said Mark Hanna, an ICT spokesman.

“The board is also required to ensure that TWIA complies with sound insurance principles and meet all standards imposed by law. Hurricanes do not happen every year but it is imperative that a reasonable rate be charged in order to allow TWIA to have funds in the future to pay claims after catastrophic events.”

Hanna believes that although Texas has not had a major hurricane event since 2008, TWIA should not become too complacent.

“All it takes is one storm or a series of storms to quickly deplete TWIA’s funds,” Hanna added. “TWIA’s funds were almost completely exhausted after paying Hurricane Ike claims and Ike wasn’t even listed as a major hurricane.”

ICT contends that if TWIA wants to be a financially sound insurance operation that is able to serve its policyholders during potential future catastrophic events, decisions that ignore objective actuarial recommendations, such as the Aug. 2 vote, could jeopardize TWIA’s ability to pay claims for its policyholders in the future.

Inadequate rates could hurt coastal consumers in a number of ways, the press release states.

First, if TWIA has insufficient amounts in the CRTF, TWIA policyholders may have to pay surcharges to cover losses. These surcharges will hit policyholders who buy homeowners and other insurance products such as auto, general liability and other coverages.

Second, inadequate rates may jeopardize the ability to even issue new bonds to help pay losses. And, if private insurers are assessed to help pay for losses, these assessments could also impact rates for non-coastal Texas policyholders.”

ICT is the largest state insurance trade association in the country consisting of approximately 500 property and casualty insurers writing business in Texas.

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