Texas legislators made strides during the recently ended 84th legislative session to improve windstorm insurance  in an effort to better protect coastal residents in the event of a tropical storm. Gov. Greg Abbott signed a bill June 16 that lawmakers said will solve many of the issues the Texas Windstorm Insurance Association encountered during Hurricane Ike in 2008.

TWIA, the last resort windstorm and hail insurer in the state, issues nearly 300,000 policies each year for residents on the coast. The association’s  designated catastrophe area is composed of 14 coastal counties—including Brazoria and Galveston—and a portion of Harris County.

The bill—Senate Bill 900, authored by state Sen. Larry Taylor, R-Friendswood—will adjust TWIA’s funding structure and board of directors. The legislation also will rename the association the Texas Coastal Insurance Association as well as give the Texas Commissioner of Insurance authority to appoint an outside administrator to manage TWIA operations.

Taylor and state Rep. Greg Bonnen, a fellow Friendswood Republican who sponsored SB 900, praised the bill as a positive development for TWIA policyholders, Texas coastal residents and the state’s economy.

“The coast is a huge economic engine for the whole state of Texas,” Taylor said. “Texas is very blessed to have a coast, but there’s a price to pay for that because we have hurricane exposure. If we didn’t have TWIA to help write these coverages and keep them at affordable rates, it would shut down the [state’s] economy and make it very difficult for people to live here.”

However some experts have not applauded the legislation as strongly. Seth Chandler, University of Houston law professor, said SB 900 does not fully solve many issues with TWIA, especially with regard to the association’s funding.

“[SB 900] provides marginal improvement in the ability of TWIA to pay claims,” he said. “It [also] perpetuates the unfairness of having people in the less densely populated parts of the coast pay for risk that’s really concentrated in the most densely populated parts of the coast, like Galveston, Brazoria and Nueces counties.”

TWIA tweaks

Some, including Taylor, criticized TWIA for its response in the wake of Hurricane Ike. Legislators have since modified the operation of the association  multiple times. Taylor said achieving a secure program for affordable windstorm insurance was again a top priority of his during the most recent legislative session.

“It has been a concern for everyone living along the coast that we get our windstorm funding levels in order in case we have a big [storm], and we did get that done this session,” he said. “We secured the funding that we need for a one-in-100-year [catastrophic] event.”

Taylor said incompetency and dishonesty by TWIA management in their response to Hurricane Ike prompted him to include altering the association’s administration in his bill. Taylor originally called for new management, but the final version of SB 900 allows  Texas Insurance Commissioner David Mattax to choose an independent administrator for TWIA if deemed in the best interest of policyholders and the public.

“We didn’t replace the management, but we have a trigger now [where] the Insurance Commissioner can step in at some point in the future,” Taylor said. If [TWIA] starts getting out of line again, [Mattax] can come in and hire a third-party administrator to come run TWIA, which gives us some protection to [avoid] some of the mistakes from the past.”

SB 900 will also modify the makeup of TWIA’s board of directors. The board, whose responsibilities include setting premium rates, is composed of four coastal residents, four insurance industry representatives and one inland representative. The bill will create an equal composition of three coastal board members, three inland board members and three insurance industry board members.

“[SB 900] will require board decisions to be made as a result of true deliberation, and ensure that coastal protection is not subjected to the arbitrary interest of the insurance industry,” Bonnen said.

Wanted: private insurers

One of TWIA’s goals is to reduce its number of policyholders. The association’s number of policyholders more than doubled from 2005 to 2007 after private insurance companies began dropping windstorm coverage following big losses from storms in Florida and Louisiana, Bonnen said.

“TWIA was never intended to be the primary windstorm insurer along the coast,” he said. “[Reducing policyholders] is a shared goal that the agency has with the Legislature and residents of the coast, but that means we have to get the insurance companies participating in writing windstorm policies.”