Committee Debates Coastal Insurance Problem
(Austin) Saying Texas is facing a financial catastrophe, the Chairman of the Senate Business and Commerce committee laid out a bill Tuesday aimed at funding insurance for coastal property owners.
Senator Troy Fraser of Horseshoe Bay said the Texas Windstorm Insurance Association, the insurer of last resort for storm insurance along the coast, is almost out of money. With nearly $80 billion in obligations to policy-holders on the coast, Fraser warned that if another catastrophic storm hits the coast, the consequences to the state could be severe.
"Doing nothing is unacceptable. If we do nothing, we run the risk of bankrupting the state of Texas if we have a major storm," he said.
Much of the problem with TWIA, said Fraser, is that it has become the only insurer along the coast. He pointed out two main reasons for this. First, because TWIA offers very low premiums, it is pricing private insurers out of the market. Also, a lack of reinsurance funds for underwriters, used to offset catastrophic claims, makes insuring Texas coastal properties very risky.
Fraser admitted many would disagree with the bill, SB 14, because it would levy surcharges on both insurers and policy holders in order to build the catastrophic emergency fund. SB 14 would require TWIA-member insurers to pay a $400 million surcharge to build the fund.
It would also increase premiums on all TWIA policy holders, a 20 percent increase to rates this year, with a 10 percent increase each of the next four years for policies written on a primary home, and 20 percent more for secondary homes. The state would kick in $500 million this year, and would contribute more to the fund over the next four years. The bill would also make it harder to get insurance through TWIA, requiring proof of two denials from private underwriters to get coverage. New TWIA policies for secondary homes would have a 40 percent surcharge added.
Senators from coastal regions expressed their displeasure with the bill. Senator Tommy Williams of the Woodlands, who represents the upper Texas coast, disagreed with the notion that the premium surcharges would only impact rich property owners with million-dollar beach houses. "I have a lot of hard working people, they are doing very tough jobs that are important to the economic future of this state, and they're going to be adversely impacted by the decisions that we make and by the way this bill is laid out now," he said. Brownsville Senator Eddie Lucio, Jr. wants to spread the cost around.
"If we want to be able to raise some serious money that will address a state issue, which this is, we should look at a blanket surcharge across the state," he said. Lucio pointed out that the coastal economy is a critical part of the Texas economy, so any decision that impacts the coast will impact the whole state.
Fraser doesn't think the surcharges are too onerous. He pointed out that policy holders along the coast have been paying an artificially low rate through TWIA, and under a private insurer would have paid a higher market rate.
"The bulk of the burden right now we're putting on the insurance companies," said Fraser. "[Rates] have been insufficient for an extremely long time, and that [increase] would just move them in the direction of a fairness level, but wouldn't really get them to a fair level."
The Senate will reconvene Wednesday, April 1 at 11 a.m.