TWIA Board Approves Third-Party Financial Review

The Texas Windstorm Insurance Association board today unanimously approved a proposal from a third-party firm to conduct a financial review of the insurer of Texas’ coastal residents — despite avid opposition from state Rep. Larry Taylor, R-Friendswood, the co-chairman of the Windstorm Insurance Legislative Oversight Board.

In a letter to Mike Gerik, the chairman of the TWIA board, Taylor suggested an actuarial review by a third party would be used to hike policyholders’ insurance rates, and he added that TWIA should not spend additional funds for a review that TWIA has in-house staff capable of conducting.

“I find it unreasonable for a board to continuously seek rate increases while failing to halt out-of-control spending on defense attorneys and plaintiff’s firms for damages on policies that should have been paid fairly and promptly from day one of the claim being filed,” Taylor said in the letter. 

During the board meeting, Gerik responded to Taylor’s letter by saying members of the board had been “pretty much instructed by the commissioner [of the Texas Department of Insurance]” to do an actuarial review to evaluate the financial structure of TWIA.

“There is no decision being made as to rates,” he said.

Although TWIA was founded by the Legislature and receives taxpayer funds, it also collects premiums from policyholders and operates like a private insurance company. 

Hiring a third party for the review would give the agency “another set of eyes,” Gerik said, to confirm everything is in order or point out changes that TWIA may consider in the future. After the review is conducted, the board will vote on whether to follow the third party’s proposals, which may include a rate increase. “It will be up to the board to decide if they want to do anything, which could be nothing,” he said.

In response to the board’s decision, John Polak, the general manager of TWIA said, “It was felt that an independent review would be beneficial to all stakeholders.”

The proposal by Merlinos and Associates, a firm that assesses risk and the financial structure of insurance agencies, will cost TWIA $89,000 for 400 hours of work — the second-to-least-expensive proposal out of the four proposals evaluated by TWIA’s actuarial committee.

Jim Murphy, the in-house actuary for TWIA; Pete Gise, the controller who handles TWIA’s finances; and Jennifer Wu, a representative from the Texas Department of Insurance, unanimously selected the proposal from Merlinos and Associates at a TWIA actuarial committee meeting this morning, and recommended its approval to the board. They evaluated the proposals using a grading system they created, which compared the experience and references of each firm, the clarity of the proposal, and the cost.

Lawmakers passed controversial reforms to TWIA this past legislative session in order to cut down on lawsuits filed against the insurance agency. Accused of mishandling thousands of Hurricane Ike claims, TWIA paid $48 million on legal defense related to that hurricane alone. 

In the letter to Gerik, Taylor said his constituents' policy rates have increased 22.3 percent since Hurricane Ike and TWIA should reign in its legal bills before seeking out a proposal for another rate hike from a third-party firm.

He emphasized TWIA’s $117 million in legal expenses to date, including $60 million in defense costs related to litigation, $11.5 million to trial lawyers’ firms for the Hurricane Ike class settlement, and $1.4 million spent on the legal costs of “handling or challenging open records requests.”