The insurer of last resort for virtually all property owners along the Texas coast is considering going into receivership, a move just short of bankruptcy.
If officials for the quasi-governmental Texas Windstorm Insurance Association decide to pursue receivership, it could leave many coastal residents and businesses with no coverage as the summer storm season looms. It would also throw into question millions of dollars in pending claims from past hurricanes and potentially hamstring growth along the coast.
“To me, receivership is the last possible step that anyone should be talking about, ” said state Rep. Todd Hunter, R-Corpus Christi. “Some people liken it to bankruptcy. To me, receivership is inappropriate, and it is the wrong thing to do. Receivership could have financial implications for homeowners and commercial property throughout 14 coastal counties.”
TWIA, as it is commonly called, was created by the Texas Legislature in 1971 to provide windstorm and hail coverage to people unable to get insurance from the voluntary insurance market. The association insures against windstorm damage, and it has been struggling with solvency since it was hit with a barrage of lawsuits after Hurricane Ike slammed into the Texas coast in 2008.
Making Hunter and coastal residents anxious is an agenda for a TWIA board meeting Monday that says the association’s chairman, Mike Gerik, will put up for consideration a drastic step. The board of directors will “(r)eview options for addressing the current financial condition of the Association and alternatives including supervision, conservation and rehabilitation in receivership,” the agenda says.
Gerik and John Polak, the association’s general manager, did not respond to emails seeking comment, and a list of questions sent through TWIA’s public relations firm also went unanswered.
A message on the web site of the Texas Department of Insurance, which has regulatory authority over TWIA, offered few specifics about the situation. It said: “TDI has long had serious concerns about TWIA’s precarious financial condition. TWIA remains under administrative oversight by TDI, and we will continue to take all actions necessary within our authority to protect TWIA’s policyholders. TWIA’s operations are not affected at this time.”
When asked if the Commissioner Eleanor Kitzman or the department has any specific thoughts on receivership, the department’s public affairs office responded with another statement, saying the department monitors the operations of TWIA, but it “does not stand in TWIA’s shoes.”
According to the department’s 2009 annual report, it has the right to “intervene in the operations of an insurer that is operating in a manner that is hazardous to policyholders.” And one way to do that, the report said, is “to place a troubled insurer in court-ordered rehabilitation or liquidation.”
Trial lawyer Steve Mostyn, whose firm has handled many of the cases filed against TWIA after Hurricane Ike, believes receivership might be used as a way to cut off further lawsuits.
“This is an effort to end the ongoing litigation in an improper way,” he said. “The court system should end the litigation.”
Currently, there are between 1,000 and 2,000 outstanding cases connected to Hurricane Ike. In total, there were about 93,000 claims following the hurricane. The total cost was about $2.5 billion.
Charlie Zahn Jr., a real estate lawyer from Port Aransas, says receivership for TWIA would be devastating for the coast.
Without the quasi-governmental insurer writing policies on the coast, lenders wouldn’t write new mortgages and existing ones would be worthless, he said.
Receivership could “basically stop the economy” on the coast, where 38 percent of the state’s economy is anchored, said Zahn, who chairs the Coastal Windstorm Task Force, a group set up by Hunter to make suggestions for new laws.
“The initial effect would be to stop growth and business on the Texas coast,” Zahn said. “People are going to lose jobs.”
And ultimately, there would be an adverse effect on the economy of the entire state, he said.
“That ought to be troubling to every person in Texas,” he said.
Alex Winslow, executive director of the insurance customer advocacy group Texas Watch, said he too has concerns about receivership.
“It’s a drastic step that is highly unusual,” he said.
It’s also unnecessary, he argued, because TWIA has the authority to assess insurance companies an additional $300 million to keep the association viable.
By not charging carriers, TWIA is protecting big insurers at the peril of coastal residents, Winslow said. Carriers should continue paying the outstanding claims for Ike and let the premiums of TWIA’s customers go to the catastrophe reserve trust fund to pay for future storm damage, he said.
But not everyone is opposed to receivership.
State Sen. Larry Taylor, a Republican from Friendswood, said it would be a good way for TWIA to movebeyond the lawsuits.
TWIA should have gone into receivership a year ago, he said, effectively acknowledging that it’s bankrupt and needs help.
“I support receivership so we can move forward from this point on,” Taylor said.
Taylor has a bill in the Legislature to prepare the state and coastal residents for the coming hurricane season. Senate Bill 1700 would fund coastal policies with $4 billion this year from premiums, assessments on carriers and reinsurance.
Taylor’s measure is just one of several bills that lawmakers will consider before the end of the legislative session on May 27.
Other measures that would shape TWIA have been filed in both the House and Senate, and the final piece of legislation likely will come from a collaborative effort.