The Texas Windstorm Insurance Association dodged the full wrath of coastal lawmakers in the legislative session that ended May 31. Still, the session ended with the legislature passing four bills directly affecting TWIA. Senate Bill 1448, HB 2920, HB 769 and HB 3564 have been signed by Governor Greg Abbott into law.
Senate Bill 1448, by Sen. Larry Taylor, R-Friendswood, was what could be called bait-and-switch legislation. It started out as a bill that would extend the life of two temporary boards created by the legislature in 2019 to address TWIA issues. There was no opposition to this bill when heard in the Senate. Neither of the boards actually met during the two-year interim; blame the pandemic which became an obstacle to in-person meetings. One board was to address TWIA’s funding structure; the other, a potential merger of TWIA with the Fair Access to Insurance Requirements (FAIR) Plan.
While in the Texas House of Representatives, the bill picked up some amendments that are expected to deter TWIA from increasing rates. As passed by the legislature, along with allowing the boards two years to complete their work, SB 1448 requires a two-thirds vote by the TWIA board to pass rate increases and eliminates the ability for TWIA to raise rates by five percent or less without approval of the commissioner, an authority the board has had since 2009. Both of these provisions appeared in the original version of HB 769, which had drawn strong opposition from insurance trade groups early in the process. Abbott signed this legislation into law on May 26.
As a side note, five percent increases have been implemented seven times since the 2009 enactment, with no rate increases imposed in 2010, 2017, 2019 and 2020.
HB 769, as it passed the legislature during the closing days of the session, creates another hurdle for the board to vote on rate increases: The board cannot vote on a rate increase if any vacancy on the TWIA board has existed for more than 60 days. The 60-day provision was added to the bill by Senate floor amendment. The bill as presented by Taylor in the Senate Jurisprudence Committee would have prevented a vote on a rate increase if any vacancy existed. During the senate committee hearing, a spokesperson of the National Association of Mutual Insurance Companies pointed out that a board member who anticipates a vote on a rate increase that he or she opposes could dismantle the board’s authority to vote on a rate increase merely by resigning from the board. “Theoretically,” said Jon Schnautz, regional vice president of NAMIC, “one person can veto a rate action.”
The bar on the board to vote on rate increases if a vacancy on the board exists was originally proposed in HB 3810 by Rep. Todd Hunter, R-Corpus Christi, but official legislative action on Hunter’s bill ended when the bill was referred to the Senate Business and Commerce Committee. Ultimately, the concept was included in HB 769, which was heard in a different committee, Senate Jurisprudence, which does not generally receive insurance legislation.
Sen. Taylor, who handled Rep. Mayes Middleton’s HB 769 in the Senate, offered and passed the 60-day amendment on the floor.
As the bill passed the Senate Jurisprudence Committee, it was a “vast improvement over the house version,” according to Paul Martin, vice president of government relations for the Reinsurance Association of America. The only other provision of HB 769 that remained in the proposed legislation when Taylor laid it out in the senate committee prohibits TWIA from purchasing reinsurance from an insurer or broker involved in the execution of the catastrophe model TWIA uses in determining the probable maximum loss or in developing rates.
Having removed most of the provisions the insurance industry found objectionable in the bill, insurance industry representatives limited their comments to “on” the bill rather than “against” the bill in the senate committee.
Martin explained to the committee that it is a common industry practice for a broker to be responsible for running the catastrophe model when engaged to place an insurer’s reinsurance. The broker uses only approved inputs from the insurer, said Martin. Still, Taylor insisted that cat modeling by a “disinterested third party” would result in a reduced reinsurance need and lower reinsurance costs, with savings passed on to TWIA policyholders.
Most of the provisions that the insurance industry opposed in HB 769, as Middleton introduced it, were removed by Taylor’s senate committee substitute. The eliminated parts included moving TWIA’s headquarters to a first or second tear coastal county, requiring the private market insurers to split the cost of TWIA’s reinsurance without recouping the cost through a premium surcharge, removing loss adjustment expenses as a factor in determining probable maximum loss, and eliminating TWIA’s annual contribution to the Catastrophe Reserve Trust Fund from excess premium surcharges in favor of using the funds to retire debt. Middleton, a coastal lawmaker who is a Republican and president of Middleton Oil Company, did not convince his colleagues of the need for these measures.
Signed by the governor on June 14, HB 3564, sailed through the legislature with minimal opposition. The legislation stops the Texas Department of Insurance from changing its mind on a certificate of compliance once issued for purposes of being insured by TWIA. A certificate of compliance certifies that a building improvement complies with the applicable building code under the TWIA Plan of Operation.
The author’s statement of intent for the legislation indicates that under existing law a certificate of compliance can be issued, then rescinded “due to no fault of the policyholder, which in turn can lead to the loss of insurance coverage” by TWIA. Rep. Dennis Paul, R-Houston, sought to correct this problem through legislation that limits TDI’s authority. The proposal received three no votes in the House and two in the Senate, all from other Republican lawmakers whose districts are north or east of Dallas. This new law became effective immediately.
Rep. J.M. Lozano, R-Portland, carried HB 2920, the only proposal recommended by TWIA in its biennial report to become law. This bill authorizes a grace period of not more than 10 days for payment on policy renewals with TWIA. The bill was signed by Abbott on June 7 and becomes effective on Sept. 1. It received three dissenting votes in the House and unanimous consent in the Senate. Business and Industry Committee Chairman Sen. Kelly Hancock, R-North Richland Hills, sponsored the bill in the Senate.
Coastal legislators proposed other changes in public policy for TWIA, but their bills failed to pass. Among those failing to pass were HB 1450 by Rep. Abel Herrero, D-Robstown, which would have required rate increases to be approved by policyholders; HB 1451 by Herrero, which would have added coastal members to the TWIA board; HB 4419 by Middleton, which would have made changes to TWIA’s claims handling procedures, and HB 3809 by Hunter, which would have required the commissioner to set TWIA’s rates, not by the traditional rating standards of just, fair, reasonable and adequate, but by politically flexible standards. Also not passing was HB 429 by noncoastal Rep. Ken King, R-Canadian; this proposal would have expanded TWIA coverage to the entire state for tornado and wildfire perils, something King has introduced in prior sessions.