The Texas Windstorm Insurance Association (TWIA) is a quasigovernmental state agency that serves as the insurer of last resort for wind and hail damage for property owners in 14 Gulf Coast counties.
The problem is a big one: TWIA does not have the resources it needs to be actuarially sound. With the lack of private-market insurers in those counties, TWIA has become the only option— and that is not sustainable.
What does this mean for the real estate industry?
In order to secure mortgages, borrowers must have adequate insurance. Since fewer and fewer insurance providers will write windstorm policies in this area, the viability of this key sector of the real estate market is in jeopardy.
Furthermore, the Texas Gulf Coast is a vital component of the Texas economy. Any coastal catastrophe caused by acts of nature would have a devastating effect on the fiscal stability and viability of the entire state.
The Texas REALTOR® position
The Texas Association of REALTORS® believes all property owners in Texas should have access to risk-related property insurance. Because the Gulf Coast is such an important part of the Texas economy, the association also believes TWIA policyholders should not bear the entire financial burden associated with insuring against these catastrophic events.
Additionally, any solution should include better underwriting rules, adequate rates, liability limits, and more stable funding strategies, as well as incorporate the private insurance market in some capacity.
Lawmakers will deal with windstorm insurance this session. Stakeholders are exploring options for a long-term, comprehensive, viable, and reasonable solution.
The 84th legislative session in 2015 saw significant progress on windstorm insurance reform, thanks to SB 900, which:
- Implemented actuarially sound insurance principles by mandating that TWIA have enough funding every year to pay Probably Maximum Loss on a 100-year event;
- Ensured administrative accountability by giving the Texas Department of Insurance Commissioner the ability to privatize TWIA management, if necessary;
- Provided equal representation of all stakeholders on the Board of Directors by changing the composition of the Board of Directors from 5/4 industry/coastal representation to 3-3-3 (with new representation from inland areas); and
- Promoted private-market solutions by requiring biennial studies of market incentives to promote voluntary participation in the wind- (and hail-) insurance market.