Photo: Kim Brent / The Enterprise
An independent review of the Texas Windstorm Insurance Association’s rate inadequacy has come out in time for public comment ahead of a crucial committee meeting next week.
The Actuarial and Underwriting Committee will meet next Wednesday to review a report on TWIA’s future financial stability ordered earlier in the year, and could possibly recommend a rate filing for the board of directors meeting in December
While the new estimates are better than what was found in a staff review this summer, the new report by Willis Towers Watson still forecasts that current rates would not be sufficient to cover losses in a worst-case disaster.
The report became public Monday, giving policyholders with the state’s windstorm insurer of last resort a chance to speak up before the next meeting.
Using slightly different methods to estimate the association’s liability, the firm determined that current rates for TWIA’s residential policies could fall 32% short of covering a maximum-loss scenario; commercial policies were determined inadequate by 42%.
The latest internal review completed by TWIA staff in July indicated a 44% rate inadequacy for residential coverage and 49% for commercial.
One of the largest differences in the Willis Towers Watson assessment is the use of a long-term view when predicting hurricane frequency. TWIA has traditionally used a near-term view in its models, at least since 2008, that takes historical hurricane frequency as a baseline and adds a five-year assumption of hurricane impact that takes into account the cycle of highly active and mild hurricane seasons in the Atlantic.
“For the hurricane-loss ratio based on industry experience, we changed the frequency to be a measure of the frequency hurricane years and not of hurricanes,” the report authors wrote.
Public comment is being accepted until Friday via email at PublicComment@TWIA.org
They made such other suggestions as removing the cost of storm surge loss from its rate filing and gathering more detailed data for its models like the age of roofs on insured homes. TWIA has operated under the assumption that it will end up paying for some damages caused by storm surge, but the independent report excluded this assumption.
Along with some improvements to its outlook through data collection and model adjustments, the firm predicted TWIA will see some better outcomes in the future when House Bill 3 becomes effective on Sept. 28.
The new law is expected to ultimately speed up the claims process after storms, reduce the average of settlements TWIA will pay out in lawsuits and create cost-sharing opportunities for home improvement that could lower damage costs.
TWIA’s board has been exploring the need to address inadequate rates, but it has avoided any kind of large rate hike while it tried to answer questions about whether the association’s self-assessment should be verified.
It voted to not seek a rate increase in August, though it could still request a rate increase later this year.
The latest study findings were released as Hurricane Sally bore down on the Gulf Coast, potentially bringing 30 inches of rain in some areas, and four other named storms were progressing across the Atlantic Ocean.
It also fell almost a month after Hurricane Laura dealt devastating wind damage and storm surge to southwest Louisiana and parts of Orange.
Jefferson County Judge Jeff Branick said he would prefer to see insurance rates for TWIA customers in his county stay the same.
“There are some private insurers coming into the market, and it is getting less expensive,” Branick said. “But the reality still is a couple extra hundred dollars a month for a young couple buying their first house means they are more likely to settle in Hardin County.”
If the next couple of years are relatively calm like a decade ago, he said, TWIA could build up its reserve fund to a safe level.
But, after the prediction of an extremely active Atlantic hurricane season in 2020 and more devastating storms possible in the years ahead due to climate change, that scenario seems less likely.
Branick said he worries a rate hike could result in low- and moderate-income families on the Gulf Coast to go uninsured.
He said he would ultimately like to see a system where coastal residents are able to have their costs shared across the state through private markets, noting that they bear part of the costs of hail storms and wildfires for other parts of the state.