Reforms approved for Texas windstorm insurance

Justin Stoltzfus

Insurance coverage for windstorm damage has been front and center in Texas lately. Relations between homeowners and the Texas Windstorm Insurance Association TWIA), which provides Texans with wind damage coverage if they can't get it elsewhere, have been stormy. And the passage of a reform bill aimed at helping TWIA remain above water was equally choppy during the 2011 legislative session.

What is TWIA?

TWIA is the state's wind damage insurer of last resort. Because the Gulf Coast is at such a high risk for hurricanes, many insurers refuse to do business there or refuse to include wind and hail damage in their standard policies). Texas created TWIA in 1971, according to the association's website, to provide coverage for homeowners in 14 coastal counties.

In some counties, those who want TWIA coverage also may be required to buy flood insurance through the National Flood Insurance Program NFIP). Homes that get covered by TWIA policies must pass a windstorm inspection and have certain standards of wind resistance in place. Also, this extra insurance coverage, like other kinds of event-driven coverage, is not something that homeowners can buy at the last second. Policies must be in place before a hurricane enters the Gulf of Mexico.

Rather than compete with private companies, TWIA puts all property insurers authorized to do business in the state into a pool, according to its website. That, in theory, helps spread the risk when a hurricane hits.

What's the controversy?

Hurricanes are expensive for homeowners and insurance companies. And claims from recent storms like Hurricane Ike) have left TWIA swimming in claims and exposed weaknesses in its financial structure, according to the Texas Coalition for Affordable Insurance Solutions TCAIS).

During the 2011 session, the Texas Legislature considered House Bill 272, which attempted to balance consumer protections against the need to keep TWIA afloat. This was a challenging balancing act, with attorneys who profit when property owners go after TWIA in court), insurers, homeowners and lobbyists all pushing for their interests.

The bill did not pass during the regular session, so Gov. Rick Perry called a special session, when it was considered again. The Legislature hammered out an agreement with just a day left in the special session. Perry signed the bill into law July 19.

What will change?

Much of the reforms in the new law address the legal complications that result when TWIA wrongfully denies claims. In the past, unfair claim denials could result in a check for the policyholder for up to three times the original claim. Policyholders also could ask TWIA to pay them penalties for late-claim payments. This, according to TCAIS, left TWIA loaded down with liability.

Under the new law, policyholders no longer can collect late-claim penalties. They can, however, still collect increased damages if their claims are wrongfully denied. The amount they can collect, however, is lowered to double the original amount. Moreover, they must first have their disputed claims reviewed by a third party before they go to court -- and, in court, they must demonstrate that the insurer intentionally, and in bad faith, denied their claims.

In addition to reorganizing the claims dispute process, the bill also establishes deadlines for filing claims. Supporters claim that the new law will help TWIA get back on its feet financially. Opponents, meanwhile, worry that reducing the consequences for TWIA will hurt consumers..

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