As criticism and concern brewed across the Capitol, the state’s top insurance regulator tried to explain Thursday what might happen to the troubled insurer of last resort for most of coastal Texans.
Texas Department of Insurance posted four pages of frequently asked questions and answers that were meant to address the possibility of putting the Texas Windstorm Insurance Association into receivership, a process likened to bankruptcy.
TWIA, as it is commonly called, was created by the Texas Legislature in 1971 to provide windstorm and hail coverage to people unable to get insurance from the voluntary insurance market. The association insures against windstorm damage, and it has been struggling with solvency since it was hit with a barrage of lawsuits after Hurricane Ike slammed into the Texas coast in 2008.
Many coastal lawmakers began to worry about the association earlier this week when they saw an agenda item for an upcoming meeting. A line on the meeting notice said the board of directors on Monday will “(r)eview options for addressing the current financial condition of the Association and alternatives including supervision, conservation and rehabilitation in receivership.”
State Rep. Todd Hunter, R-Corpus Christi, reacted Wednesday by saying “receivership is inappropriate, and it is the wrong thing to do” and would have “financial implications for homeowners and commercial property throughout 14 coastal counties.”
Then on Thursday, Hunter and other members of the Legislature met with Insurance Commissioner Eleanor Kitzman to talk about further regulating TWIA.
But some coastal legislators’ nerves were not eased.
Late Thursday, state Sen, Judith Zaffirini, D-Laredo, wrote a letter to Kitzman, TWIA general manager John Polak, and Mike Gerik, chairman of the board of directors, urging them not to put the association into receivership. Doing so would undo significant bipartisan work to restructure the troubled association, she said.
“Worse,” Zaffirini wrote, “as anyone with your significant background in the industry should know, placing TWIA into receivership could make it nearly impossible for consumers who live in the coastal region to maintain coverage for their properties.”
Zaffirini also echoed critics who have slammed TWIA for not exercising its right to assess insurance companies. The South Texas senator wasn’t specific, but other people have said TWIA could be on better financial footing if it forced carriers to pay the association $300 million to $600 million.
Also Thursday, TWIA’s actuarial committee heard some troubling news. The Quorum Report’s John Reynolds reported that the association’s actuarial committee was told that receivership could make it hard to get future financing and to buy reinsurance.
Led by Kitzman, the Texas Department of Insurance lists 19 questions and answers meant to help coastal Texans and lawmakers understand the implications of further regulatory action on TWIA.
The FAQs can be found under the Highlights section of the department’s website at http://www.tdi.texas.gov/.
The questions begin with an explanation of the rehabilitation process, and the department explains that it is a type of receivership proceeding.
The department goes on to explain that if the process gets underway, the commissioner would act as a “rehabilitator” and would give a court a financial plan for TWIA. She also would provide an exit strategy for the association to emerge from the bankruptcy-like situation.
In an apparent effort to ease minds and criticism of policyholders, the department also says on its webpage that TWIA would continue to renew and issue policies as well as fulfill its obligations under current policies.
But as far as existing claims, the department says: “If TWIA’s funds are insufficient to pay all existing claims, it may be necessary for the Rehabilitator to make partial payments on a pro rata basis.”
The department also addresses the years-worth of litigation against TWIA, when it says that regulatory action would put a stay all pending lawsuits.
One of the final questions reads: “If TWIA had not paid for assistance with litigation and claims operations, could TWIA have been saved and not sent into Rehabilitation?”
The answer, which seemed to be a direct message to trial lawyers, says: “No. TWIA is insolvent by $183 million. The insolvency is the direct result of litigation stemming primarily from Hurricane Ike. The total overall loss from Hurricane Ike is now over $2.5 billion.”
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