The Heartland Institute Responds to Texas Sen. Taylor’s Letter on TWIA

May 09, 2012

In a May 8 letter [attached] to leadership of the Texas Windstorm Insurance Association, state Sen. Larry Taylor (R-Friendswood) said a recommendation from TWIA’s Actuarial/Underwriting Committee that the association raise rates “is unnecessary and lacks sufficient justification.”

Late last month, the committee recommended a rate increase of 4.7 percent overall, with increases of up to 10 percent in storm-prone areas like Galveston County. Based on rate-making rules the legislature adopted last year, TWIA rates can’t vary more than 8 percent across the 14 Tier 1 coastal counties that participate in the association.

The committee’s vote came following its receipt of an actuarial report showing TWIA’s $3.79 billion in total claims-paying resources for 2012 – including an estimated $436 million of premiums and other income and $2.5 billion of bonds authorized by the legislature – would leave a 27 percent chance the agency could not cover all of its liabilities in the event of a 1-in-100-year storm.

Despite that report, Taylor requested in his letter that TWIA management “ask themselves why it is necessary to raise rates again nearly four years after Hurricane Ike with no similar catastrophe since.”

The following statement from The Heartland Institute – a free-market think tank – may be used for attribution. For more comments, refer to the contact information below. To book a Heartland guest on your program, please contact Tammy Nash at and 312/377-4000. After regular business hours, contact Jim Lakely at and 312/731-9364.

“Sen. Taylor appears to confuse insurance contracts, which transfer risk, with bank accounts, which accumulate savings. An extended period of good fortune for TWIA in the past does not reduce or eliminate the odds that it will face catastrophic claims in the future. Actuarial analysis shows that the association may not have sufficient resources to make good on its obligations to policyholders should a major storm strike.

“If Sen. Taylor would like to ease the burden of high insurance rates on policyholders, we would encourage him to work on legislative solutions that lower costs and increase private-sector competition. For instance, Texas could adopt the NAIC’s updated model law that loosens collateral posting requirements for offshore reinsurance, as states like Florida and New York already have done.”

R.J. Lehmann
Deputy Director, Center on Finance, Insurance, and Real Estate
The Heartland Institute

The Heartland Institute is a 28-year-old national nonprofit organization with offices in Chicago, Illinois and Washington, DC. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site or call 312/377-4000.

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