Oversight Committee Again Targets TWIA Costs

At a joint legislative oversight committee hearing Thursday, lawmakers harangued officials over the Texas Windstorm Insurance Association, the insurer of last resort along Texas’ coast, over the high price of litigation and consulting fees the association has racked up since Hurricane Ike ravaged the Texas coast in 2008. And coastal residents continued voicing concerns that TWIA’s exorbitant policy rates are damaging the economy.

"My frustration is we can't get past Hurricane Ike," said Rep. Larry Taylor, R-Friendswood. On Monday, Taylor sent out a news release emphasizing the $1.2 billion that has gone to litigating TWIA claims related to Hurricane Ike. At the hearing, he held up a letter he’d received at home from a law firm advertising its services in litigating against TWIA. "Don't be left out!" he read.

The TWIA board has increased policy rates annually to make up for financial losses since Hurricane Ike. And lawmakers reformed the TWIA claims process during a special legislative session to prevent future litigation costs last summer. TWIA is still under the supervision of the Texas Department of Insurance, and the TWIA board hired an outside actuarial firm, Alvarez and Marsal, to evaluate the association and recommend ways to improve its financial stability.

At the hearing, lawmakers expressed anger about the high price TWIA had paid Alvarez and Marsal to evaluate the financial structure of TWIA. Rep. Todd Hunter, R-Corpus Christi, pressed TWIA director John Polak for an explanation of how spending $200,000 to $300,000 per month on consulting fees made TWIA more financially stable. And he pressed Polak for details on the spending.

"Let's just get it out. Who else has been at the TWIA policy trough?" asked Hunter. "Did TWIA or the TWIA policyholders pay for a consultant to stay at the Four Seasons hotel? I want to know."

After a long silence, Polak responded, "Yes." He also said the firm was protected from accounting for their expenses.

"I've stayed at the Clarion for forty bucks," said Sen. Leticia Van de Putte, D-San Antonio. "I'm having a hard time trying to defend it.”

The TDI “doesn't have the expertise" to figure out how to make TWIA financially stabilize, said insurance commissioner Eleanor Kitzman. "Most of my staff are not insurance business people. They are regulators. There's a difference, so it does require the use of consultants."

Alvarez and Marsal now oversees all claims prior to 2012, including claims from Hurricane Ike. Last year, the firm compiled a report suggesting a complete overhaul of TWIA, and included recommendations such as reducing commission rates for policy sales. They also outlined possible territorial rate changes, which would charge coastal residents more or less depending on the risk of wind damage to their property. The report stated that an "increase in rates to policyholders in high density and coastal locations" would have a "significant impact on immediate profitability."

Coastal residents and lawmakers, however, have continuously expressed outrage at the possibility of territorial rate changes, which the TWIA board has not approved.

"Those rates are so high, it's going to have a detrimental effect on new businesses," said Rep. Joe Deshotel, D-Port Arthur.

Courtney Hayden, a city council member and movie theater owner in South Padre Island, explained that the broader problem is that TWIA does “not have a logical or fiscally responsible business model” because it only insures high-risk property owners. She suggested improving the situation by luring private insurance companies back to the coast, telling them TWIA will be "their insurance of last resort.” She also thinks more of the Texas Insurance Commission board of directors should be made up of consumers. "The vast majority of the money available to TWIA comes from consumers," she said. "Let us have a real voice."