Representative Larry Taylor was the main speaker at a March 5, 2012 luncheon for the Houston Real Estate Association. He is the author of House Bill 4409 otherwise known as The Texas Windstorm Insurance Association (TWIA) reform legislation. Representative Taylor currently serves as the board’s House Co-Chairman alongside Senate Co-Chairman John Corona (R-Dallas).
Rep. Taylor told the group that for 35 years everything worked fine. Then we started having five hurricanes a year in Florida. Finally Hurricanes Rita and Katrina caused so much damage that insurance companies abandoned windstorm insurance. TWIA had to step to fill the gap left by private insurance companies no longer writing windstorm insurance. Then hurricane Ike hammered the Gulf Coast leaving in its wake 95,000 claims in the hurricane pool.
The insurance companies in many cases were left with slab claims. That is “claims in which nothing of the insured structure remained after the hurricane except some or all of the concrete slab and pilings.” The companies could then argue whether it was the wind or flood waters which carried for the home. How high was the water, how strong was the wind.
Insurance companies balked at paying claims and homeowners were forced to hire lawyers to help them. Rep Taylor said that the TWIA would not furnish him with information about a $189,000,000 settlement between the agency and 2,000 property holders. Lawyers were paid $80,000,000 and an additional $55,000,000 in fees for 2,400 claims in which homeowners were paid $101,000,000.
A whooping $133,500,000 in attorney fees was paid for $202,000,000 in settlements. We added an additional 66 percent in attorney fees to the cost of claims settled. The top 3 TWIA people were fired over this.
The reform legislation will help solve the wind versus water problem. The insurance commissioner is going to name an expert panel to make the determination. Claims audit process. Auditors in TWIA offices will be checked to make sure they follow the guidelines correctly. The goal is to smooth out the process and take attorneys out of the process. Policy Holders will have an informal mediator process available to them if they are not happy with the claim. The homeowner may still take their claim to court if they desire.
Homeowners can still can have an attorney. The problem is that there are still 65 lawsuits a month being filed three years after hurricane Ike. The legislature wants to make sure that in the future there will not be 4 or 5 years of lawsuits after a major disaster. Policyholders were entitled to triple damages under the old law. With the new law they are limited to double damages.
Hurricane Ike wiped out the reserves of TWIA. The legislature has had to come up with a new funding structure. There will be post event bonds. Bonds can be issued after a event takes place to pay for the claims. Any bonds to be sold by TWIA to fund its claim obligations are supported by assessments to member insurers and surcharges to policyholders. If sufficient post-event bonds cannot be sold, then the claims of TWIA policyholders will either go unpaid or will have to be paid in some form by the State—that is, by Texas taxpayers.
Competition from private insurers will lower the price to write windstorm insurance. TWIA is a provider of last resort for parts of Harris County. Because of this they will not have the best rates are the best coverage. If all of Harris County was added to TWIA, you have made it five times bigger. TWIA simply cannot add all of Harris County to its program. Every year we don’t have a storm we add $270,000,000 in reserves to the fund. We should have about $770,000,000 in reserves. But we only have $200,000,000 because of money going to pay Hurricane Ike claims.
The settlement of Ike claims has shown that the TWIA must be monitored to insure fairness. The fact that no laws were broken in the settlement of Ike claims points out the extreme need for reform. Texas citizens will no longer stand for exorbitant lawyer fees to occur again.
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Source: Texans for Lawsuit Reform, Representative Larry Taylor