In response to the question of how to adequately fund the Texas Windstorm Insurance Association (TWIA), the Texas Department of Insurance hired Alvarez & Marsal Insurance Advisory Services LLC (A&M) to find some answers. The consulting firm’s report examined restructuring options to decrease exposure and improve customer service.

A&M provided suggestions based on TWIA’s governance, funding capacity, mechanisms for funding, commission rates and operational risk. Their recommendations included the development of a formal depopulation program, nonrenewal of structures valued above TWIA limits, and a reduction of commissions for agents selling TWIA policies.

In order to lessen TWIA growth, A&M suggested implementing a depopulation strategy including quality data, bonus program and rate adequacy. Private carriers would then have the ability to write more policies as current TWIA participants transitioned into the voluntary market.

Another concern of the firm was the disproportionate risk high value commercial properties placed on all TWIA policyholders. By eliminating these concentrations of high risk, a potential for decreased reinsurance cost emerges and opportunities for private carriers to re-enter the market materialize.

More prone to controversy was the suggestion to reduce commission rates on TWIA policies. The current high commission rates incent agents to continue to grow TWIA rather than return it to its proper role as an insurer-of-last-resort. By yielding an additional six to nine percentage points over what they are paid to sell private policies, agents are motivated in the wrong direction. Such a change would only require the approval of the TWIA and TDI rather than the painful legislative process.

Despite the fact that many of A&M’s recommendations require no legislative action, none have been given the green light and there are no plans by the department to implement any of them.

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