The Texas Windstorm Insurance Association Faces Serious Financial Trouble

Unless you live on the coast and have experienced hurricane wind damage you’ve probably never given the Texas Windstorm Insurance Association (TWIA) a second thought. But in light of their new financial troubles, you’ll want to become familiar with them even if you live inland.

Texas Windstorm Insurance Association

What is the Texas Windstorm Insurance Association?

The TWIA is the non-profit Texas government entity that was once known as the Texas Catastrophe Property Insurance Association.  After decades of hurricanes, some insurance companies have decided to exclude wind and hail damage for properties located in coastal regions. The TWIA has stepped in to provide basic wind and hail insurance as last resort coverage for property owners in Texas’ 14 coastal counties and parts of Harris County that would otherwise have to go without it.

Like other TX homeowners insurance companies the TWIA enters into a contract with a property owner who then has to pay premiums and file a claim if damage occurs. In addition to premiums the TWIA also receives subsidies in the form of assessments paid by for-profit insurers in the state. The key problem here is that despite premiums and subsidies the TWIA has had serious financial trouble for years.

The TWIA’s Financial Troubles

For some time now the TWIA’s been sinking further and further into the red. There have been a series of strong hurricanes in the last decade, which cost more to cover than the TWIA had collected. This is part of the reason traditional insurers are reluctant to offer coverage.

There has also been mismanagement and a barrage of lawsuits from over 1,900 policyholders after Hurricane Ike in 2008. The association was accused of cohorting with claims adjusters and not paying on legitimate claims. These lawsuits thrust the TWIA further into debt, which as of March 2013 stood at approximately $183 million.

Add to that the Great Recession and cuts in state and federal spending and it has been a recipe for financial disaster for the TWIA. Despite an overhaul by the Texas Legislature in 2011 the financial troubles persisted.

Just this past March focus turned to finding a solution to get the TWIA out from underwater. The Texas Department of Insurance brought an idea of receivership to the TWIA board. Receivership is a lot like filing bankruptcy, but it allows the business to reorganize. This idea was rejected due to pressure from representatives in the coastal regions who were concerned that receivership would affect current legal actions and potentially delay payouts.

Another solution that has been suggested is to increase the assessments on for-profit insurance companies. Policyholders have long spoken out against the fact that the TWIA has raised their premiums on policyholders over the last few years while the assessments have remained the same since 2008. However, that idea has failed to be approved by the board, which consists of 10 members.

Since receivership has been tabled, the Legislature is back to the drawing board, considering several options for restructuring the association and improving its financial situation. Now that we are well into hurricane season and the association’s ability to handle another storm is in question, the need to figure out a plan of action has become a high priority.

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