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House Insurance met on August 30th to discuss TWIA’s rate increase for residential and commercial policies and its readiness and preparedness for the upcoming storm. The meeting can be found here.

 

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Chair Oliverson – Coastal Delegation brought up concerns about SB 1448; wanted to come together to discuss
  • Invited representatives of TX Coast to hear their input
  • Also want to hear thoughts on TWIA preparedness for hurricane season
  • Todd Hunter – TWIA oversees 14 counties on TX Coast; has been continual fight, insurance vs. the people
  • Main focus/concern is on rates; Hurricane Harvey in 2017 humbling experience, didn’t see outpouring from TWIA to help, saw constant struggle; the issue is about people
  • Can’t pile on rates as world faces all sorts of issues; people vs. insurance and TWIA
  • TWIA continues to raise rates, have been stopped before by Governor and TX Department of Insurance
  • Have signed letters against hikes in rates, TWIA has ignored them; TWIA going against legislative wishes
  • Asked TWIA to wait to decide on increased rates until SB 1448 came into effect on Sept. 1; TWIA didn’t wait and didn’t follow will of the bill and voted 5-3 to implement increase in rates
  • 22 legislators spoke against TWIA’s action
  • When TWIA calls a board meeting, public is blocked out; why aren’t they disclosing how many people are opposing it?
  • TWIA board by law requires members to give conflict of interest, but only ask vague questions; need to know if members will benefit financially from certain board policy decisions
  • Need new conflict of interest laws
  • Lists insurance agents who have made effort to listen
  • Questions if TWIA is actuarily compliant; asking committee to look at rate structure of TWIA; asking committee and TX Department of Insurance to look into conflict of interest rules
  • Should be listening to companies and constituents, those who care about TX and TX Coast, not lobbyists
  • Part of administration of TWIA has reached out and does visit with legislators; board chairman has been part of this

 

Public Testimony

Jim Murphy, Texas Windstorm Insurance Association

  • Oliverson – SB 1448 made it clear that starting Sept. 1st, TWIA couldn’t implement higher rates without a 2/3 majority? Clear legislative intent, but TWIA slid rate increase under the door
    • Other statute requires TWIA to finalize rates by August 15th; merely acted in compliance with this statute
    • Board did discuss public comment, motion to leave the rates alone did not pass
    • Did not technically pass with a 2/3 majority
  • Oliverson – Rate increase not compliant with bill intent; not necessarily violating the letter of the law, but violating the intent is not allowed either; was there discussion that move would further worsen the adversarial relationship between legislators, the people, and TWIA?
    • The relationship was not discussed, the timing was discussed
    • Rates fall back on actuarial analysis; current rates were inadequate; board motivated by association’s ability to pay claims after storm
  • Oliverson – It’s of preeminent importance to make sure TWIA can function in an actuarily sound manner and function in the service in which it can provide; trusts the number but go back to the optics here, looks like TWIA is ignoring will of legislature; what steps are you going to take to make relationship with legislators and policy holders better?
    • Jennifer Armstrong will answer
  • Hunter – At August TWIA board meeting during public comment section, legislators asked TWIA to wait until Sept. 1st; board ignored us?
    • Discussed it, didn’t grant request
  • Hunter – Rate voted on after requests were made; during actuary committee meeting, what was vote count?
    • 4-2
  • Hunter – So 2 people didn’t think actuary was sound?
    • No, disagreement on technical analysis; public policy decisions that made them vote against it
  • Hunter – Has there been disagreement among the various different type of actuaries that have come up with proposals?
    • Yes, differences of opinion
  • Hunter – It seems like actuaries working with insurance companies think TWIA is actuarily sound; independent actuaries the ones raising questions
  • Hunter – How many people submitted comments to the August board meeting?
    • 100s, 90%+ against a rate increase
  • Hunter – Had 22 legislators saying to wait, have 100s of members of public asking TWIA to wait, but went ahead and raised rates; public comment doesn’t have impact
  • Briscoe Cain – Mentioned that TWIA has duty by law to submit rates by Aug.15; does this require TWIA to vote by Aug. 15th? Has vote ever been delayed?
    • Vote required before you submit the rate
    • No, but can file for no change in rates and then deliberate more after that
  • Cain – So board had authority to wait until Sept. 1st to make decision about rates?
    • No, board has to take the action to complete a rate filing regardless; can be for existing rates
  • Cain – Gave appearance that board’s hands were tied, but still had discretion to file no rate change and wait; could have done so
    • Could have filed for no change in rates, yes
  • Mayes Middleton – Looked at independent actuarial analysis, discovered a lot of problems regarding TWIAs actuarial analysis; reinsurance costs are highest; one of issues of buying too much reinsurance, prevents ability to pay down debt?
    • If not spent on reinsurance, would be available to pay down bonds; a good investment
  • Middleton – AMR and RMS give protections to buying insurance? Requiring this of coastal residents; if requiring, then should get full credit
    • Both models have appropriate credits for protections
  • Middleton – Reinsurance broker also determining modeling to determine how much reinsurance to buy? Severe conflict of interest; HB 1769 would prohibit this
    • No incentive to buy more; understand conflict of interest provisions, compliant with those; no bad intent or action on part of broker
  • Middleton – Then why were independent report and recommendations ignored?
    • Broker always prepares several versions of models for board to review; independent report recommended a certain model’s use, broker just recommends everything so board can decide
    • Middleton – Model that was presented was very different from one recommended; generates greater reinsurance cos; $15 million extra due to conflict of interest
  • Middleton – HB 1769 passed before purchase of reinsurance, would have prohibited use of broker; broker meeting took place days before bill became law, went against intent of law and against report; patterned practice of TWIA going against coastal ratepayers
    • Decision of how much reinsurance to buy was made in February; board listened to all recommendations, chose 50/50 model
    • Primary motivation of board is to make sure association has money to pay claims
  • Middleton – Need legislative change to make sure if TWIA exhausts its reinsurance, still has money to pay claims; but also consider that TWIA has repeatedly acted in best interest of reinsurance brokers and insurance lobbyists; TWIA created to carry weight of coastal insurance; consider how wrong a path TWIA has gone down
  • Middleton – Questions the need for TWIA if legislative changes made, concern over high salaries for all of the administrative members of TWIA
  • Dennis Paul – Ignoring legislature is serious; could have waited for two-thirds approval and honored legislative intent?
    • Sounds reasonable
    • Members would have needed to agree to no change
  • Paul – Any communication with TDI?
    • Yes

 

Jennifer Armstrong, Vice President of Communication and Legislative Affairs Texas Windstorm Insurance Association

  • $4 billion available for hurricane season; prepared for claims that could come in
  • Update catastrophe plan every year and send it out June 1
  • Oliverson – Assuming the worst case scenarios regarding hurricane season, how is TWIA prepared to step in?
    • Positioned very well to respond in terms of adjusting resources; funding good for a single season; potential concerns if multiple storms in one season; funding relies on debt
    • If multiple storms, could turn into policy holder storm charges
  • Oliverson – As part of legislative bill, reauthorized legislative oversight board; how is TWIA positioned in terms of working with legislature and oversight board? Made any progress?
    • Waiting on appointments; ready to meet and serve as a resource
    • Due to pandemic, meetings delayed; winter storm impeded appointments
  • Oliverson – It appears that TWIA isn’t responsive to legislature and/or tone deaf to needs of people along the coast; hope there was a conversation at board level of consequences of perception of rate increase; what plans are in place to remedy relationships and address issues?
    • Reached out to legislative offices to discuss decisions; board not snubbing legislature
    • Inherent tension; want available funds to be ready for any claims
  • Middleton – Provision in HB 1769 to move TWIA HQ to first or second tier coastal counties; would have saved money and rent; TWIA worked against legislation as it moved throughout the process; TWIA should represent ratepayers’ best interests, evidence points against this; TWIA lobbying against provision because they don’t want to move out of Austin
    • Primary concern with the relocation was service disruptors to policy holders; if located along gulf coast, and building and employee homes sustain hurricane damage, would inadvertently impact service to policy holders
    • Suggested a few customer service groups in Gulf Coast area; discussed multiple outcomes with legislators
    • Out of context, efforts from TWIA employees to change legislation don’t look good
  • Cain – What kind of building would be built on Gulf Coast as required by HB 1769? What kind of employees would be needed there? Did you have any concern that you would be officed there? Any employees expressing concern that they would have to move?
    • HQ would be located in tier 1 or 2 county
    • Depends on if goal was to have board meetings there, customer service efforts there
    • No; a concern among some employees with families
  • Cain – Armstrong sent out an email the day HB 1769 was engrossed in April that bill would be problematic, that there would be up to 50% turnover due to relocation?
    • Yes, could cause turnover
    • Serving as a resource to legislature, want to make sure they have access to all the information; if TWIA lost 50% of employees, would either have to hire more or mitigate losing employees so there wouldn’t be a disruption of service
    • Goal is to avoid policy holder service disruption
  • Cain – Part of being in legislature is going back to home counties to live under laws and life that legislature dictates; see any benefit to same situation for TWIA employees?
    • Completely understand that; have staff adjusters who live along coast
  • Cain – What do you do with TWIA? What about government relations?
    • Strategic communications, government relations, strategic planning
    • Make sure legislators have access to information they need to make informed decisions regarding constituents and TWIA operations
  • Cain – Duties include reaching out to members of legislature? Reach out to them unsolicited? Did it happen more often this session than last?
    • Yes
    • Potentially, new committees and new members to committees to communicate with
  • Cain – Upset these bills didn’t go where you thought they should go?
    • Not upset; lots of movement in short period of time
  • Cain – Looking at another email sent by Armstrong; referred to action plan? What is that? Mentioned Carrie? Referenced best outcome in most efficient way; do you often give opinions on outcome on legislation?
    • Without more context, don’t know
    • Works on Senator Taylor’s staff
    • Not sure talking about legislation in that case
  • Cain questions Armstrong about specific language she used in emails and the way in which she approached state reps and senators; questioned her goals regarding the movement of bills and her intentions
  • Armstrong clarifies that goal all along was to ensure no disruption of service to policy holders; worked to change language that would lead to no disruption
  • Cain questions Armstrong about her lobbying activities
  • Oliverson – Not chair’s intent to discredit any member or witness, asks for respect in comments; questions the difference between legislative affairs and lobbying
  • Paul – Has TWIA ever looked at a policy that covers just hurricanes and not regular storms that would be covered by regular homeowner policy? Would be willing to look at idea?
    • Not during personal tenure
    • All options are on the table, willing to look
  • Hunter – Letter wasn’t the only time sent in plea with 20+ legislator signatures; pattern of ignoring; concern about transparency; why does TWIA not publish the public comments?
    • Published on website after meeting; heard feedback, can publish before meeting next time
  • Hunter – Salaries of TWIA; paid from policy holder premiums? Why do coastal policy members want to pay higher rates, and be told after votes are already done? Paying for lack of transparency
    • Yes, that’s where all the money comes from
  • Oliverson – Several companies involved with TWIA are member-owned companies; didn’t know public input wasn’t published prior to meetings
    • Board members are sent every single public comment, but not the policy holders
  • Cain – Reference back to emails and the concerns Armstrong had with the legislation

 

Melissa Hamilton, Public Counsel at Office of Public Insurance Counsel

  • Oliverson – OPICs position here is to be on side of the public, ensuring that products meet needs and represent best interest of consumers
  • Oliverson – Events that transpired at TWIA meeting, does this fit with public’s best interest?
    • Any time there is a rate increase, transparency important to consumers; different opinions regarding what happened regarding rate discussion, but in general rate increases are problematic to public
    • Legislature in best position to speak to what TWIA did regarding legislative intent
  • Oliverson – OPIC involved with interim board looking at TWIA?
    • Not formally, have been called before
  • Oliverson – Does OPIC handle complaints about TWIA? How are they doing in terms of representing policy holders?
    • OPIC is a small agency; in terms of complaints or concerns, get narrow viewpoint, TDI can answer better
    • Haven’t heard many complaints, can pull exact numbers
  • Oliverson – Does OPIC look at or have any knowledge of how much a company is spending on overhead?
    • Will look into it; expenses and how they’re used something OPIC can look at
  • Hunter – Public comment always before TWIA meetings; board gets that info; failure to communicate comments to public or policy holders
    • Important that policy holders have access to public comments
  • Hunter lays out problem with lack of communication and lack of transparency in regard to public policy holders
  • Hunter – Asking committee and OPIC to look at a way to guarantee public access to TWIA related information; start looking at alternatives to TWIA
  • Middleton – Need to revisit order of things: when actuarial committee put out public comment for rate analysis and rate recommendations, closed public comment period before any documents were put out to explain reason for increased rates? Example of sloppiness and lack of public comment
    • OPIC willing to work with TWIA to make sure public has access to public comment

 

Patrick Rios, Mayor of City of Rockport

  • Rockport was ground zero for Harvey; long way to go in terms of recovery
  • 71% of kids in school district live at or below poverty level; very little middle class presence; regular TWIA policy holder in Rockport is working class trying to support family; have difficulty understanding complexities of TWIA
  • Adjusters came in after Harvey, confused locals and made things complicated and confusing
  • 9 declared disasters since Harvey; mental health of public not good
  • Rate increase would bring tremendous disaster to the people of Rockport
  • Current inflation rate could be considered 10th disaster
  • Should try looking at other carriers, develop a hybrid
  • A lot of residents still waiting on claims from TWIA
  • Oliverson – Contrast between those who can vacation in Rockport vs. those who live there; not compatible or possible for locals to pay increased rates
  • Rios – Seeing growth and economic development that is forcing people out of Rockport who would like to live there
  • Not just TWIA rates going up, prices and rates going up across the board
  • Thompson – Alluded to claims and issues your constituents have seen; in dealing with different policies, difficult to tell which policy needs to cover what; did you see a lot of this?
    • 3 different adjusters showed up after Harvey; FEMA, TWIA, regular homeowner
    • Regular homeowner policies didn’t do much
    • TWIA difficult to deal with; but helpful, difficult to get everyone on the same page
    • Variety of adjusters giving different opinions
  • Paul – Own experience with variety of adjusters after Hurricane Ike; In Harris County have to have high deductible policies, same in Rockport?
    • People don’t understand differences in policies, look for cheapest premium and don’t know what they’re missing

 

Sally Bakko, Director of Policy and Governmental Relations for City of Galveston

  • Discuss SB 1448 and its effective date; opportunity to have oversight board look at TWIA, but has been delayed
  • Need opportunity to look outside the box and find insurance that is sustainably affordable; TWIA using rate increases as band aid approach
  • SB 1448 gives opportunity to look at what can be done differently
  • State of Florida has good reinsurance policies; TX should look at that
  • Can TWIA take on a more reinsurer role, selling smaller, low-cost claims? Reduces risk for private insurance, but also involves private insurance participation; bundled private insurance policies? Premiums could thus become more affordable
  • Can bring legislators and public policy holders together to restructure TWIA in a meaningful way
  • Galveston residents rely on ability to afford home and business, rising costs of TWIA making this impossible
  • Coastal communities contribute 34% of state’s GDP; 25% of jobs in TX in coastal communities
  • Middleton – Galveston is a service economy, so important to get it right to grow economy; different reinsurance policy discussed could be good solution, TWIA has deviated from original mission as insurer of last resort, now insurer of only resort
  • Paul – Good ideas regarding looking at other options; thoughts on coast’s storm preparedness?
    • Moving forward with plan that minimizes storm surges; plan should be signed in mid-September
    • Biggest concern is authorization of the report and plan by Congress; stresses that this is crucial for all of nation as Gulf Coast serves as important port for all of U.S.

 

Terrilyn Tarlton Shannon, Self; CWIC

  • TWIA policies are watered-down, reducing coverages; policy holders paying more for less coverage
  • Can’t do what you want with policy money, have to use it for specific things
  • After IKE, TWIA nowhere to be found; house unlivable; then claim denied; had to go through multiple adjustors to get claims paid
  • Flood insurance now required for anything built after 2009; earlier construction doesn’t have to; not logical
  • Purpose of insurance to get paid on claim; not happening with TWIA
  • No payment plans with TWIA
  • Credit card rate higher with TWIA than any other company
  • Would like functional endorsement for claims
  • TWIA made change where you can’t insure more than one residential property on one plan
  • Tells story about experience as insurance agent and being ignored by TWIA
  • Frustrated with difference in requirements of insurance agents vs. those of TWIA and its board members
  • Thompson – When your house was uninhabitable after Ike, did TWIA pay additional living expenses?
    • Yes
  • Paul – TWIA saying they won’t sell a policy for wind coverage unless you get FEMA flood insurance?
    • Only in the VE zone, and only something built after 2009
  • Middleton – Wish that TWIA cared as much as Tarlton does; with skewed replacement cost calculator, TWIA basically increasing rates without voting on them
    • Yes
  • Middleton – Interesting that TWIA has been out of office due to COVID but didn’t want to relocate
  • Middleton – Can you talk about TWIA’s automated coverage cancellations if you send it to wrong place?
    • Horrible, takes weeks to know if a payment has been received, don’t know if payments were sent to right place; only have a few days in some cases to get coverage in place before storm
  • Middleton – Anecdotal stories about processing claims
  • Tarlton – Talks about new flood insurance policy stipulations

 

Beaman Floyd, Texas Coalition for Affordable Insurance Solutions

  • Provides joint letter from 4 trade associations
  • Wants to work on solution to problem, alternative to TWIA; incrementalism and sustainability important values to consider in terms of solutions
  • Concerns regarding bonding layer in funding pattern; not sustainable
  • Wants to create base for CRTF to buy surcharges statewide, would create working floor to reduce costs
  • Coalition members provide insurance in tier 1 counties; covers 61% of residential policies & vast majority of commercial policies; private marketplace doing lots of insurance business in area
  • Recognizes the issues of rate shock, affordability
  • Thompson – Talking about insurance company involvement in this; any discussion of where insurance company could do underwriting portion for associations like TWIA? Why isn’t this commonplace?
    • Substantial conversation about this after Ike; multiplicity of claims adjusters
    • Conversation delayed by so many lawsuits after Ike; issue got overwhelmed by big lawsuit issue
  • Lozano – TWIA created after 1970 Hurricane Celia where insurance companies feared going bankrupt; brings up redlining
    • Insurers have to justify rates based on rates; can’t be based on race, national origin, or other factors
  • Lozano – Regarding redlining, Supreme Court case brought up crime rates, which were associated with race; concern that TWIA operating discriminatory system that was established before supreme court case about redlining; don’t want to operate a system that is broken
  • Lozano – Troubled by reports of bad treatment on part of TWIA; private insurers doing better job; competition important to giving people options
  • Floyd – Population of TWIA has gone down, speaking to what you want which is more people writing policies in Gulf Coast area; should eventually move towards being a “beach plan” and have private marketplace supporting the rest of the area
  • Paul – $4 billion in TWIA toolbox; are they prepared to handle hurricane season?
    • Yes, prepared to handle a 1 in 100 year hurricane
    • $4 billion is in financing
  • Paul – If the $4 billion could take care of this, why do they need 5% increase?
    • Risk is substantial; if you can take care of this one $4 billion storm this year; more than one storm means additional issuance of debt; would drain financing; don’t want huge % of premium amount going to debt service
    • Not sustainable model
  • Paul – Is it cheaper to buy more debt service or buy more reinsurance?
    • Eerily similar, problem with bonds is that capital has been spent
    • Premium should be for forward risk
    • Math of the rate increase can’t be changed
    • Paul – If the risk was there, why was there not a 2/3 vote?
    • Floyd – Should have been unanimous, risk is there
  • Hunter – Challenges Floyd to bring in insurance employees to meet with coastal legislators; questions actuarial soundness of Floyd’s statements
  • Hunter – Does your group always agree with TWIA? Agree with me?
    • Not always
  • Hunter – If TWIA board member is a member of your company and they raise rates, is it not conflict of interest? Increase in rates not appropriate at this time; human element to all of this

 

Jay Thompson, Afact

  • Used to be differences in insurance rates based on location and proximity to coast; evolution has caused notion of “one size fits all” for all 14 counties
  • Rate that was filed isn’t effective until Jan 1, 2022; people can have chance to shop
  • 43% of every dollar paid to TWIA is for fixed expenses (salaries, reinsurance, bonds), 23% paying agent commissions, 16% taxes to state, 5% to CRTF, 14% predicting to be non-hurricane claims
  • 5% rate increase necessary because of inflation; can be used next year to pay claims
  • Bonding formula not sustainable; impacts policy holders
  • Need to get through 2022, come back in session in 2023, have study this year and come up with a new system instead of bonding formula
  • Imperative that committee looks at TWIA funding; need to look at other ideas
  • Lozano – If things had remained the same after Hurricane Celia, what would be different today?
    • You would see market response; could be some amount of coverage; there would be difficulty insuring lower value buildings on barrier islands
    • Primarily a 14 county focus
    • Came up with catastrophe trust fund to protect every one of policy holders
    • Every dime in CRTF come from coastal policy holders, want to protect it, and build on it
  • Thompson – Talking about reinsurance, policy holder in Galveston is paying same portion of reinsurance as in Brownsville; can you spread out rate increase based on risk?
    • Some areas have done much better job implementing and enforcing new building codes; helps prevent losses
    • Rate increases are so politicized that nuances of rates impossible
    • Need to make sure funding is right and sustainable over long term before you look at differences in rates
  • Middleton – Concerned about TWIA solvency; why have you not supported TWIA buying more reinsurance?
    • Why should people have to buy more? Required preparedness for 1 in 100 year hurricane was put in law to be a standard
    • Only been recently that could buy reinsurance; if not for reinsurance, TWIA could not have paid for all of Ike damages; difference was, prior to that, unlimited assessment on insurance companies, couldn’t afford to go years without premium tax revenues
  • Middleton – Is TWIA already above 1 in 100 hurricane risk money amount?
    • Regulated for solvency, each group determines how much they want to protect solvency
  • Middleton – More efficient to provide own reinsurance? Implies reinsurance purchases of TWIA inefficient
    • Important to protect surplus, set aside reserves; if they have to provide extra reinsurance, would have to set aside reserves for that regardless of if there was a loss or not; have to have 1% of amount as cushion
    • Just another cost policy holders are bearing

 

Luke Bellsnyder, Deputy Commissioner of Texas Department of Insurance

  • Invited to talk about rate structures and TDI preparedness for storms
  • Hunter – Sad thing about today’s hearing is that it’s an annual problem; no proposed solution; need to look for solutions; when looking at proposals, make sure half of constituents aren’t getting break and the other get hit worse; communication and transparency on rates needs to be TWIA priority
  • Hunter – Wants Bellsnyder to meet with chairman; human element is just as important as economic element; hurricanes are traumatic, impact humans a lot; want to see insurance executives who care about the coast on the board
  • Bellsnyder – Committee has TDI’s commitment to help with whatever; human element important, statutory element also important; will follow law, and will implement and regulate accordingly
  • Thompson – No one has discussed windstorm certification program; in conversation with chairman, would like to see some numbers in terms of losses and recent construction in accordance with certification