The majority of the board of Texas Windstorm Insurance Association voted to implement a five percent rate increase for residential and commercial policyholders, effective Jan. 1, 2022. Approval came on a 5-3 vote at the Aug. 3 virtual meeting. Staff submitted the rate filing on Aug. 6.
Law applying to this rate filing does not require approval of the commissioner, as the new law requiring approval of all of TWIA’s rate filings does not go into effect until Sept. 1. The 5-3 vote is also in keeping with current law, as the new statute requiring a two-thirds vote of the board becomes effective on Sep. 1. One coastal member of the board, Peggy Gonzalez, was not present for the meeting; one non-coastal territory representative, Tim Garrett joined the other two coastal representatives on the board who are TWIA policyholders in opposition to the rate increase.
Jerry Fadden, TWIA’s chief financial officer, and Debbie King, chairwoman of the TWIA Actuarial and Underwriting Committee, reviewed the committee’s recommendation for this rate increase, noting that the indicated rate need is 39.0 percent for residential and 46.0 percent for commercial. This rate need is lower than the prior indicated rate need because the committee applied the recommendations of the Willis Towers Watson analysis which lowered catastrophe model results, reinsurance expenses and operating expenses.
Georgia Neblett, a coastal representative, tried to postpone any vote on the matter. She said the board should wait until the effective date of recently passed legislation and for the legislative TWIA funding oversight committees to act. She recalled the earlier public testimony from four coastal lawmakers, all of whom voiced opposition to any rate hike. TWIA received a written objection to a rate hike dated July 28 signed by these lawmakers and 18 others.
TWIA’s consulting attorney Mike Perkins reminded the board that it was required to make a rate filing by Aug. 15, even if the recommended rate change was zero.
Neblett moved for a zero rate change, but her motion failed, 3 yeas to 5 nays. During discussion on Neblett’s motion, Ron Walenta, non-coastal representative, said, “We cannot argue with the rates being underpriced. Hurricanes don’t know about Covid. We have a fiduciary duty to have adequate rates for projected losses. … We have an obligation to fund our risk picture; we are not doing that. It defies insurance logic.”
Corise Morrison, an industry representative on the board and member of the Actuarial and Underwriting Committee, noted that the recommendation of the committee does not reach the rate need. Instead, said Morrison, the committee favored trying to make a modest filing to chip away at the rate deficiency. Morrison moved for the board to consider the five percent rate hike. Walenta seconded the motion.
In other business, the board directed staff to file a proposed update to the Association’s Rate Manual for approval by the commission. Last updated in 2012, this manual outlines rules and rates for TWIA underwriting; it does not include a rate change.
The board also voted to send a proposal to increase maximum coverage limits by class of business to the commissioner for approval, another annual requirement on the TWIA board. TWIA staff benchmarked the limits to match publicly available construction cost index information.
The impact of this filing is to increase dwellings and individually owned townhouses from $1.773 million to $2.037 million, or 14.9 percent; manufactured homes, from $84,000 to $96,600, or 15.0 percent; contents of apartments, condos or townhouses, from $374,000 to $426,000, or 13.9 percent, and commercial structures and contents from $4.424 million to $4.927 million, or 11.4 percent. In several recent years, the commissioner disapproved TWIA’s filings for increases to maximum coverages.
In a separate agenda item, Walenta opened discussion on potential changes to agent commission structure. Walenta advocated dropping agents’ commissions on TWIA policies from 16 percent to 10 percent for new business and eight percent on renewals. (That is a 37.5 percent cut for new business and a 50 percent cut on renewals.) Walenta reasoned that two legs of the three legged stool were tightening their belts: TWIA by reducing operating expenses and policyholders who are being asked to absorb rate increases. He said it was time for the third leg of the stool to “bear some of the burden.” He said the last change in agents’ commission paid by TWIA was in 1992.
Walenta said the FAIR Plan commissions are set at 12.5 percent for new business and 10 percent for renewals. The Texas Auto Plan, said Walenta, pays 10 percent commission on both new and renewal business. He called TWIA’s existing 16 percent commission rate “very, very generous.” Walenta added that a voluntary carrier is now writing property including wind on the coast, Dover Bay Specialty Insurance Company, paying commission rates of 10 percent to seasoned agents and eight percent to new agents.
Walenta reminded committee members that the Sunset Commission recommended separate commission rates for new and renewal business, “to compensate insurance agents in a manner commensurate with the work required.”
The board agreed to bring the issue to TWIA’s agent advisory group for input at the group’s October meeting and to revisit the issue at the December board meeting after more information is gathered, including workload comparisons on new and renewal business in Texas and comparisons to other states’ residual market commission structure.