On Sept. 4, Willis Towers Watson reported its independent evaluation of rates and catastrophe models for the Texas Windstorm Insurance Association, finding the rates deficient for 2021. The numbers come in not quite as deficient as TWIA’s internal actuaries predicted to the board in August. Still, the independent review offers numbers significantly higher than any rate increase TWIA has imposed in its history, as well as significantly greater than the annual average rate increase of 2.4 percent for residential properties and 2.1 percent for commercial properties for 1988 through 2019.
The WTW report indicates a rate inadequacy of 32 percent for residential and 42 percent commercial; whereas, TWIA’s staff analysis indicated rate inadequacies of 44 percent for residential and 49 percent commercial.
The difference between the two indications lies primarily in how the AIR and RMS catastrophe models were incorporated into the analysis and recommendation. TWIA staff used a 50/50 blend of the two models; WTW weighted the models 25 percent for AIR and 75 percent RMS.
Both catastrophe models, said WTW’s report, utilize building inventory values, but they differ in how they predict loss results. “RMS has region-specific damage functions for buildings with unknown occupancy, construction, year built or number of stories…. Texas is a region on its own in RMS,” said WTW. AIR, however, combines states with similar building inventories together; the AIR model puts Texas in a group that includes Louisiana and Mississippi.
WTW’s report also stated that AIR is much more punitive than RMS for older structures, or those built prior to 2004. TWIA’s insured properties include high percentages built prior to 2004, with 77 percent of residences and 71 percent of the commercial book considered older and, therefore, more vulnerable.
WTW also recommended that TWIA gather more granular data on the building characteristics of properties it insures to improve hurricane model accuracy. Secondary modifiers can apply a credit or penalty to a property’s risk characteristics, said WTW, indicating that both AIR and RMS add sensitivity for roof age, roof anchors, roof geometry and other data factors that TWIA does not currently collect. The WTW report details 11 secondary factors that RMS would apply and 25 factors that AIR would apply in estimating potential loss costs if TWIA’s database included the information.
TWIA’s Actuarial and Underwriting Committee was slated to meet on Sept. 22 to review the WTW report and make a recommendation to the TWIA board. The meeting was to be conducted by Zoom, with access and participation by the public. Meeting materials, including the full 67-page WTW report, became available on Sept. 8 on TWIA’s website. Consideration of the committee’s recommendation moves to the full board which may act on the recommendation in an interim meeting or at its December quarterly meeting.
An archived recording of the Sept. 22 meeting, which occurred after the press deadline, is available on the TWIA website.