On Jan. 8, the Texas Department of Insurance notified the Texas Windstorm Insurance Association that the association’s Dec. 30 rate filing for a five percent increase in both commercial and residential rates was rejected. The basis for the denial was insufficient notice to the public. TWIA’s board had approved the rate filing on Dec. 8 during a meeting held by webcast.
In denying TWIA’s rate filing, TDI cited Texas law requiring the association’s rate adequacy analysis to be available to the public at least 14 days prior to a vote by the board of directors on a rate change. TDI said that the second analysis by Willis Towers Watson, which incorporated additional risk factor data, was relied on by TWIA for its rate filing; however, this report became available to the public on Nov. 30, making a Dec. 8 vote premature.
TDI also faulted TWIA for not including specific mention of a rate hike consideration on the published agenda for the Dec. 8 meeting, a specificity that TDI found in previous TWIA board meeting notices. The rejection of the rate filing was signed by Chief Deputy Insurance Commissioner Doug Slape, with questions about the rejection directed to Mark Worman, deputy commissioner of property and casualty.
At least a dozen interested parties, including public officials or their representatives and policyholders, attended the Dec. 8 virtual meeting and commented in opposition to any rate hike. According to an article in the Corpus Christi Caller Times, a subsidiary of USA Today, several coastal lawmakers objected to the rate increase as filed and asked Gov. Greg Abbott to use his emergency powers to stop it. The rejection of the rate filing by TDI, said the Texas bureau article, effectively eliminated the need for the governor to step in.
TWIA spokesperson Jennifer Armstrong, vice president of communications and legislative affairs, responded in a media release that the WTW analysis reported on Nov. 30 was not considered in the TWIA rate filing, adding “TWIA will defer to the department’s interpretation of this statute” for future rate filings.
Insurance Council of Texas Executive Director Albert Betts weighed in on behalf of Texas insurers on Jan. 12. “Unfortunately, TDI rejected the rate increase and based their decision on procedural errors by TWIA, to the delight of some coastal stakeholders who oppose any rate increase regardless of the evidence and need to protect TWIA’s financial stability.
“However, TDI’s rejection did not speak to the appropriateness of the approved rate increase nor did TDI address TWIA’s need to operate like an insurance company and its responsibility under the law to maintain adequate rates. It’s disappointing to see this decision when the TWIA board attempted to meet its legal duty and the modest rate increase would help provide additional funds to strengthen TWIA’s ability to pay losses after the next hurricane,” said Betts.
ICT’s media release continued, “In our opinion, TWIA’s board balanced the financial difficulties caused by COVID-19 with the business needs and obligations of TWIA as an insurer and approved a fair result. Obviously, the TWIA board will have to determine what its options are given TDI’s decision, but we would urge the board to again give careful consideration to TWIA’s obligations to its policyholders and the legal requirements as an insurance company.”
As of Jan. 18, it was unknown whether the TWIA board is expected to consider re-filing the rate increase at its next scheduled meeting on Feb. 23.
While TWIA’s rate filing was pending at TDI, TWIA released additional information on Jan. 5, indicating that its rates are deficient by at least 11 percent residential and 20 percent commercial even if all the insured buildings had wind resistant windows and doors, an optimistic fiction that TWIA’s Actuarial and Underwriting Committee asked WTW to provide a rate analysis for.
This new document, an analysis by WTW of hypothetical scenarios of all coastal and near coast properties having full protection for openings, was requested by the association’s Actuarial and Underwriting Committee on Dec. 1. It was then that the committee discussed WTW’s report that contained available data on additional risk characteristics of TWIA’s insured properties. This second analysis by WTW was based on fewer than 20 percent of the properties having opening protection.
TWIA’s documentation that became data turned up fewer properties with such protection than actually exist, insisted former board Chairwoman Georgia Neblett, who serves on both the committee and the board. A vocal opponent of TWIA rate increases, Neblett was among other committee members who posed the question to WTW: What if all the properties insured by TWIA have full optimal opening protection, such as hurricane shutters, reinforced garage doors, impact resistant glass, and other wind-debris-resistant coverings? By motion of the committee, WTW was further tasked with this theoretical scenario and asked to complete a rate analysis by the Dec. 8 board meeting.
While preliminary results of this third and final WTW analysis may have been available during the Dec. 8 board meeting, the analysis was not discussed. WTW emailed the written report on the hypothetical scenarios to Underwriting and Committee Chairwoman Debbie King, vice president of risk management at AmTrust Financial after normal business hours on Dec. 15.
King then delivered the analysis to TWIA staff on Jan. 5. Within a day, TWIA staff forwarded the hypothetical scenarios performed by WTW to board members, TDI, legislators and coastal officials, persons that TWIA staff recognizes as parties interested in the TWIA’s rate making process.
The hypothetical scenario analysis revealed that even if all insured properties have all structural openings protected from high winds, TWIA’s rates remain deficient by amounts greater than what was sought in the rate filing. Three days later, TDI rejected TWIA’s rate filing.
TWIA’s media release on Jan. 6 stated that the latest report from WTW “provides a theoretical impact to modeled output and rate indications if all TWIA insured buildings in the Seaward and Inland 1 areas were upgraded to meet the current building code standards for exterior openings.”
The purpose of this analysis, said TWIA, was to provide a range of outcomes. “It is not modeling an actual scenario and does not change WTW’s previous finding….”
The results of the hypothetical scenario analysis support a recommendation TWIA makes to the legislature in its 2020 Biennial Report to the 87th Texas Legislature. There, TWIA recommends that lawmakers consider the effectiveness of the Insurance Institute for Business and Home Safety’s fortified home construction program, with the possibility of developing a state-sponsored funding program to upgrade coastal structures. The biennial report says such programs have been effective in other coastal states, most notably North Carolina and Alabama.