A new report from The Heartland Institute, a national think tank with offices in Austin, Chicago, Washington, DC, and Tallahassee, Florida, offers an outline for confronting the major problems facing the Texas Windstorm Insurance Association (TWIA).
TWIA, a “market of last resort” intended to provide property insurance for people unable to find it in the private sector, was recently placed under administrative oversight (a de facto state takeover) by the Texas Department of Insurance. Its own financial accountings show that whatever happens, TWIA would have a very difficult time making the payouts it has promised following a major storm.
“TWIA has very serious problems. We wrote this paper to offer suggestions for how to deal with them,” said Eli Lehrer, vice president for Washington, DC operations at Heartland and author of the report. “It needs to get its management in order and then figure out how to protect taxpayers from the massive liabilities it imposes on the state.”
The legislature shouldn’t let TWIA’s management problems distract from its structural ills, Lehrer warns. “Given the allegations, it’s natural that the legislature would want to review and improve TWIA’s management structure first and foremost. Doing so is the first point in our report,” noted Lehrer. “But the legislature would disserve the state if it let efforts to solve TWIA’s management problems distract from solving its deeper ills.”
“TWIA imposes an enormous liability on taxpayers’ pocketbooks, and it is incumbent on the legislature to reform our insurer of last resort this session in order to avoid a raid on the state’s already-strained treasury,” agreed Julie Drenner, Texas director of Heartland’s Center on Finance, Insurance, and Real Estate.
The report offers a four-point solution for fixing TWIA:
* Create a new “Office of Residual Property Insurance Market Oversight” within the Texas Department of Insurance to oversee, monitor, and report on the activities of TWIA and the related Texas FAIR Plan Association.
* Require TWIA to have sufficient resources to cover two back-to-back events with a combination of cash and private-sector-recognized risk-transfer instruments such as reinsurance and private catastrophe bonds.
* Improve market competition by reforming rate regulation and Texas’s insurance regulatory bureaucracy, modifying nonrenewal laws, and improving the provision of information to consumers.
* Promote coastal conservation and safety by restricting subsidies for coastal development and, to the extent practicable, helping people of modest means to retrofit their homes.
The report is available at Heartland’s Finance, Insurance and Real Estate News website at: http://www.heartland.org/firepolicy-news.org/article/29514