• June 20, 2012

Texas Windstorm Insurance Association damage estimates questioned

Texas Windstorm Insurance Association damage estimates questioned

150 150 Elect Todd Hunter

Texas Windstorm Insurance Association damage estimates questioned

By Rick Spruill
Updated Wednesday, June 20, 2012

CORPUS CHRISTI — Cash shortages and questions over its ability to raise more in an emergency has the Texas Windstorm Insurance Association working to find a solution should residential and commercial property owners’ damage claims outpace the money available to pay them.

Texas Department of Insurance Commissioner Eleanor Kitzman on Wednesday told the Caller-Times that the commission and the association will announce their plan within the next few weeks.

Her comments come in the wake of the release of letters exchanged by Kitzman, State Rep. John Smithee, R-Amarillo, and state Rep. Todd Hunter, R-Corpus Christi.

The letters relate to potential losses should a storm slam Brownsville, Corpus Christi or Galveston. Kitzman says in the letter the state is not obligated to cover claims should the windstorm association run out of money to pay policyholders.

The letters also have raised questions of whether the Texas Windstorm Insurance Association, known as TWIA, is basing estimates on sound information.

Hunter, senior member of the Corpus Christi House delegation in Austin, on Wednesday questioned the accuracy of numbers cited in Smithee’s letter to Kitzman.

Smithee’s letter, sent Monday, said models provided by the association estimate that a Category 4 hurricane could cause damages in excess of $14.3 billion in Corpus Christi, $14.2 billion in Galveston and $3.3 billion in Brownsville.

The letter asked Kitzman to confirm that the association would come up about $10.7 billion short if a storm of that magnitude should strike and what the commission is planning to do about it.

Kitzman confirmed the cash shortfall, based on the damage estimate.

Hunter expressed skepticism about the damage estimates and said he planned to meet with the commission and the association as soon as possible.

“I wonder what is the percentage chance of a $14 billion storm hitting? I plan to ask about that,” Hunter said. “We need to sort out what is real information and what is not real information.”

The association, operating under close supervision by the commission, submitted the models as part of its most recent request to raise rates by 5 percent, Kitzman said on Wednesday.

The increase was approved last month and will take effect on Jan. 1. It is the third such rate increase in as many years.

Kitzman told the Caller-Times in an email Wednesday that the commission did not validate the models because the rate increase was justified based on other factors.

The association raises money by collecting premiums on about 244,000 current policies and issuing bonds both before and, if necessary, after a catastrophe.

Also under consideration is a premium surcharge not only on windstorm policies but existing coastal property and casualty insurance policies, an idea that Coastal Bend lawmakers in an April letter to Kitzman said would go against 2009 legislation allowing such a surcharge only after a storm that caused at least $1 billion in damages.

“If Texas were to experience a major hurricane or series of lesser windstorm events, TWIA’s maximum funding capacity would be insufficient to pay all potential policyholder claims on a full and/or timely basis,” Kitzman wrote in response to Smithee’s letter that also expressed his concern that the association’s financial condition is “much worse than any of us had anticipated.”

Since 1971, the first legislative year after Hurricane Celia caused hundreds of millions in damages to Corpus Christi and its barrier islands, property owners in the 14 counties bordering the Gulf of Mexico have had to count on the association to write insurance for wind and hail damage because private carriers would no longer insure property.

Property owners in other parts of the state still get their wind and hail insurance through private carriers, which sometimes pay billions in claims following tornadoes and hail storms.

State law specifies that the association can be deemed a business hazard to the public or its policyholders if it cannot pay back money owed to public securities obligations, but it does not speak to the state’s obligation to intervene should the association be unable to pay claims on policies.

Smithee questioned Kitzman on whether the association had notified policyholders of the funding shortage and of the fact that, should the association come up short on paying claims, the state has no legal obligation to pick up the difference.

She replied that the association has made public all information related to funding and loss models but that it has not helped policyholders connect the dots between a lack of funding and ability to pay claims.

“I do not believe that TWIA policyholders have been expressly informed that the state of Texas has no current legal obligation to pay their claims. I believe this is a common misperception,” she wrote. “In fact, some media reports have incorrectly refereed to TWIA as a state/taxpayer-backed program.”

Corpus Christi Caller Times