Two Bills Seek Accountability and Changes From State-Based Insurer
Like many Gulf Coast states, Texas has experienced a number of severe storms that have caused billions in damages over the last few years.

July 09, 2011 /24-7PressRelease/ -- Like many Gulf Coast states, Texas has experienced a number of severe storms that have caused billions in damages over the last few years. The Texas Windstorm Insurance Association (TWIA) was created by the Texas Department of Insurance to be the insurer of last resort to handle wind, hail and flooding claims arising from storm-related damage. TWIA has come under fire lately for its mishandling of countless claims and its inability to handle potential claims, as well as for unsupported payouts.

TWIA's troubles have prompted two lawmakers to propose legislation exacting sweeping changes to how the Association is managed and how insurance claims/disputes are handled. This article will highlight the problems the Association has experienced, and how legislators seek to solve the problems currently facing homeowners.

Funding Storm Damage Claims

After Hurricanes Ike and Dolly in 2008, TWIA was besieged with claims seeking compensation for wind damage and flooding, essentially depleting the Association's Catastrophe Reserve Trust Fund. Before these storms, the fund had nearly $370 million available for claims. However, it eventually paid $1.85 billion in claims stemming from Hurricane Ike and $100 million from Dolly. To shore up this disparity, TWIA assessed property insurance companies operating in the state $430 million. Insurance carriers, in turn, sought reimbursement for the assessment through premium tax credits from the state.

Before 2009, the State of Texas would reimburse TWIA if it paid out more than it collected in premiums, assessments, and reinsurance. Today, TWIA is tasked to sell bonds in an effort to close its funding disparity, and to pay claims should a severe storm occur. However, if post-event bonds cannot be sold, TWIA claims will either go unpaid or be borne by Texas taxpayers. TWIA is plagued by concerns that it would not be able to sell enough bonds to cover its obligations without the State of Texas guaranteeing repayment.

Aside from funding issues, TWIA does not have the cash available to handle future storm damage claims, in addition to current damages from lawsuits. The Association's general manager recently told the Texas House of Representatives Insurance Committee that it had less than $80 million available to cover $75 billion in insured risks. If it were held to the same standard as private insurers, TWIA would need at least $25 billion (on hand and available) to insure $75 billion in risk. Despite the current shortfall, the Association is expected to continue paying out claims from lawsuits emanating from unpaid Hurricane Ike claims more than two years after the storm occurred.

TWIA Placed Under Administrative Oversight

In February, the Texas Department of Insurance placed TWIA under administrative oversight due to numerous management problems, including questionable settlement of class action claims and dubious HR practices. The Travis County District Attorney's office announced a criminal probe into possible fraudulent activity related to the Hurricane Ike claims and the handsome severance packages (totaling $160,000) that two high-level TWIA executives received.

Pending Legislation

Lawmakers believe that the solvency problems are only the beginning, and have introduced legislation to provide more oversight and restrict the types of claims that could be made against TWIA. According to a press release from the Texas House of Representatives, House Bill 2818, sponsored by Representative Larry Taylor, would require greater oversight of TWIA actions, and protect the Association by doing the following:
- Providing premium surcharge discounts for certain policies that exceed current building code standards
- Creating an "expert panel" to determine a wind versus water formula to resolve payment of difficult claims
- Allowing the Texas Department of Insurance to have greater enforcement authority over problematic inspectors
- Protecting the Association against unnecessary litigation costs

The bill would also restrict the filing of claims-related lawsuits to one year after the date of loss.

A similar bill would address the issues concerning governance and management of TWIA, processing of claims and financial shortfalls. House Bill 272, sponsored by Representative John Smithee, would streamline the application and policy issuance processes to reduce the burden on agents who sell TWIA polices. This would presumably reduce the steps in the claims process and make compensation easier for affected homeowners. On the financial front, it would eliminate the extra damage provisions in the Texas Insurance Code, which currently allow up to triple the damages in lawsuits against TWIA. The bill would also require claimants to seek arbitration in certain cases, require property owners to have flood insurance in areas particularly vulnerable to flooding, and reduce policy limits for properties in flood zones.

By seeking more accountability from TWIA and implementing changes in how claims are processed and paid, representatives Taylor and Smithee seek to save Texas taxpayers money. If you have questions about how your storm damage claim is processed, an experienced insurance claims attorney can advise you of your rights and options.

Press Release Contact Information:

Findlaw PR