Changes to coastal windstorm insurance program praised, criticized

The Legislature has made changes to the troubled Texas Windstorm Insurance Association that insurance companies are applauding. But trial lawyers and other critics are condemning them on the grounds that the changes are a slap on the wrist for TWIA and an assault on coastal property owners’ legal rights.

A quasi-public agency, TWIA is the insurer of last resort for property owners in hurricane-prone coastal counties who wouldn’t otherwise be able to get coverage. It was created in 1970 after most private insurers abandoned the coastal market following widespread damage from Hurricane Celia. While administered publicly, the insurance coverage provided is underwritten by private insurers. In recent years TWIA has been under scrutiny for mismanagement — especially after the Texas Department of Insurance caught TWIA paying insurance adjusters for work they hadn’t done and even paid out claims on those adjusters’ reports.

Mike Geeslin, state insurance commissioner, last February criticized TWIA’s management for inexperience, incompetence and untrustworthiness in its operation of the agency. TWIA general manager Jim Oliver was fired in March. Last year TWIA was forced to pay out $158 million to policyholders in a legal settlement stemming from a lawsuit over botched claims processing after Hurricane Ike, which caused massive damage in 2008. The agency was found to have routinely denied claims from policyholders, without explanation and without even bothering to investigate the claims.

There was plenty of consensus among legislators that TWIA needed fixing but little on how to accomplish that goal. The House and Senate failed to reach an agreement by the regular session deadline but managed to pass a TWIA reform bill — House Bill 3 — in the special session that ended Wednesday. The legislation is headed to the governor’s desk for signing.

The Property Casualty Insurers Association of America thinks HB 3 is a good bill. Joe Woods, PCI vice president for state government affairs, said in a statement that the reforms “are essential to bring financial stability to TWIA.” A key provision in HB 3 allows TWIA to build up financial reserves by selling bonds before a storm hits rather than relying on more expensive “post-event” bonding. Woods said the provision will help ensure TWIA is in a financial position to deal with the next destructive storm.

In addition to solvency provisions, HB 3 provides for more “operational and policy transparency” and improvements to administrative operations and claims handling, according to PCI, which likes the bill’s requirement that insurance claims be filed within one year of a storm. PCI praises HB 3 because it “streamlines the dispute resolution process” and contains measures to curtail what it sees as “lawsuit abuse.”

Critics of HB 3 say it makes it much harder for policyholders cheated by TWIA to seek redress. For such critics, “streamlining” is code for giving TWIA a pass and punishing policyholders simply for living on the coast.

Among their complaints is that the legislation erects tall legal hurdles for coastal policyholders seeking penalties against TWIA for unfair claim handling — hurdles that aren’t imposed on inland insurance customers. Also, the legislation applies retroactively, imposing restrictions on legal action begun on or after the effective date of the bill — even for policyholders whose policies were written according to the old rules. HB 3 also reduces by a third the amount of money in penalties policyholders can win against TWIA for mishandling of claims.

Another piece of TWIA reform unpopular with critics is a provision that gives rate discounts to policyholders who agree to binding arbitration, in which a nonpartisan third party decides the outcome of disputes. The provision essentially encourages policyholders to sign away their legal rights, according to the bill’s opponents, who characterize the legislation as giving TWIA leeway to continue acting in bad faith by making it harder for wronged policyholders to win penalties against the agency.

State Sen. Eddie Lucio Jr., D-Brownsville, said in a statement that the special session was a missed opportunity “to stop playing political games” with the future of the coast. However, TWIA policyholders, rather than benefiting from the legislative response to the agency’s shortcomings, “continue to be victims of a broken process,” he said.

As for charges of lawsuit abuse in the wake of Hurricane Ike, Lucio argues the wave of legal action against TWIA wasn’t the cause of the problem but rather a symptom of the problem, which was incompetence and worse on the part of TWIA. He added that special interests and not public priorities shaped HB 3.

“Lawmakers need to place a much higher value on protecting coastal rights,” Lucio said. “Texas handles the second largest amount of foreign and domestic cargo in the United States. Our ports are the gateway to our economic prosperity. It is the coast that makes Texas possible. Therefore, we owe it to coastal residents to put them first, ensuring that they have the same rights as other insurance policy holders in the state."

HB 3 also calls for the establishment of a task force to closely examine windstorm insurance issues and TWIA operations and submit a report to the Legislature in 2012.