Officials with the Texas Windstorm Insurance Association say they will ask lawmakers during the 2007 regular legislative session for the authority to issue $800 million of revenue bonds to increase funding for the state's embattled windstorm pool.
The TWIA insures more than 101,000 residential and 10,000 commercial policyholders in 14 high-risk coastal communities.
The windstorm pool was created in 1972 after Hurricane Celia hit the Gulf Coast. At that time, losses were so high that many insurance companies stopped writing policies in Texas. This would be the association's first bond issue.
All property insurance carriers that do business in Texas must participate in the pool. That participation includes paying assessments if claims from a hurricane or other storm are beyond the windstorm pool's available funds from premiums and other sources. In return, those insurers could claim tax credits for five years if they paid claims beyond the capacity of the pool. Those tax credits could affect the state's budget.
Also in an effort to increase the stability of the fund, Texas Department of Insurance commissioner Mike Geeslin this week will consider a request by the TWIA to break a state-mandated cap on insurance rate increases. State law allows insurance rates to increase by no more than 10% each year unless the Insurance Department deems that a higher increase is necessary because of catastrophic events. The proposal would allow a 19% increase for homeowners and 24% for commercial policyholders.
TWIA officials say that Hurricane Rita - which spurred $150 million in payouts by the windstorm insurance pool - makes a higher increase necessary. Last summer Rita devastated the upper Texas Gulf Coast, including the refinery cities of Port Arthur and Beaumont, with total insured losses worth about $2.4 billion.
Officials have maintained for years that that insurance rates are far too low to cover the pool's $26 billion in exposure in coastal counties.
Officials with the TWIA say that had Rita hit Galveston as a Category 4 hurricane - as it had been originally expected to - the windstorm pool would have been liable for $2.5 billion in losses. That amount far exceeds the $1.3 billion of funding the pool has on hand.
If the pool could not make all the claims filed by policyholders, the state would require private insurers to pay its claims, which would likely spur either higher rates for private policyholders or a mass exodus by private insurers from the state similar to that experienced by Texans after the black mold scares of the late 1990s and early 2000s.
At that time, black mold coverage skyrocketed, and several insurers temporarily suspended writing any new homeowner policies in the state.
