NU Online News Service, June 29, 12:00 p.m. EST
It took a special legislative session for them to agree, but Texas lawmakers have passed reform legislation for the Texas Windstorm Insurance Association (TWIA).
"The provisions in this legislation will bring some financial stability to TWIA," says Joe Woods, vice president of state government affairs for the Property Casualty Insurers Association of America (PCI).
After Gov. Rick Perry signs the bill, HB 3, TWIA will have the ability to issue pre-event bonds for the first time ever—a funding mechanism needed to improve the last-resort insurer's ability to pay claims after a storm, industry trade associations say.
Fred C. Bosse, southwest region vice president for the American Insurance Association (AIA), says TWIA could go to the bond market in 90 days, pending a recommendation from the TWIA board and approval from regulators.
"Not only will this improve TWIA's liquidity when a storm hits, but also it provides an opportunity to build a relationship with the bond market," Bosse says. "Once TWIA pays bonds on time, the market will become more comfortable and realize TWIA is a reliable risk if it needs to issue bonds post-event."
Insurers now have more time to implement surcharges on coastal property owners for post-event bonds, Bosse adds.
TWIA's financial resources were depleted after Hurricane Ike in 2008. The association has also faced thousands of lawsuits following the storm. HB 3 sets limits on how long policyholders can wait before filing a claim, and it limits damages they can seek from TWIA.
In most cases, policyholders will only be allowed to seek actual damages from TWIA, unless clear and convincing evidence is presented that meets one of a handful of requirements, says Woods. In that case, they can seek double damages. Currently, TWIA can be sued for treble damages, on top of actual damages. The measure also does away with an automatic 18 percent penalty on claims that are inappropriately discharged or delayed
In addition, homeowners now have one year to file a claim after a storm, or two years from the point of dispute.
Bosse says the bill "strikes a fair balance between the reasonable expectations of TWIA's policyholders and much-needed reforms aimed at strengthening TWIA's financial structure."
Potential reforms are forthcoming for TWIA. The bill also establishes a task force to examine wind insurance in Texas as well as TWIA's operations. The task force will report back to the lawmakers during the next legislative session in 2013.
Woods says PCI has pushed for building codes and loss mitigation to be addressed by the task force, who will likely also look at whether TWIA should exist. Another topic could be the notion of a single adjuster following a storm, since legislators have said their constituents had trouble dealing with three adjusters (one each from the National Flood Insurance Program, TWIA, and homeowners' insurer) after Ike.
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