Texas wind pool should solve funding problems before making them worse
AUSTIN, Texas (Aug. 8, 2012) — A decision by the board of the Texas Windstorm Insurance Association to raise the policy limits on both residential and commercial policies is irresponsible, given the potential funding shortage the association already faces, according to the R Street Institute.
TWIA’s board of directors voted unanimously Aug. 7 to increase limits on residential policies to just over $1.8 million and on commercial policies to $4.5 million. With these latest increases, the liability cap will have grown by 12.5 percent on residential policies and 40.6 percent on commercial policies over just the past five years.
“Texas is one of the only states where the wind pool offers subsidized coverage on homeowners policies of more than $1 million,” said R Street Texas Director Julie Drenner. “Offering such lavish policies places more risk on the association than the 4,000 least-expensive homes covered by TWIA. As an insurer of last resort, TWIA should not be on the hook for the homes of the very wealthy. There is more than enough capacity in the private market to cover them without placing that risk on other Texans.”
The board previously had dropped from the meeting’s agenda discussion of a proposal for “territorial” rate increases that would charge higher rates for those closest to the Gulf of Mexico within the 14 coastal counties, and parts of Harris County, where TWIA currently offers coverage.
In her report to the board, Texas Insurance Commissioner Eleanor Kitzman noted that TWIA has roughly $800 million in cash and reservesto pay claims and could tap another $2 billion in bonds and reinsurance. However, TWIA’s own data shows the association could face maximum expected losses of $6.66 billion should a Category 4 hurricane strike Galveston or $5.53 billion for a similar storm hitting Corpus Christi.
“We need a responsible funding plan for TWIA that protects both policyholders and taxpayers, with actuarial rates, risk transfer and much more private sector participation,” Drenner said. “Part of that almost certainly will be to scale back coverage limits, not increase them. The board is heading in the wrong direction with this vote.”
R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. Its website is www.redesign.rstreet.org.
