A bill making minor changes to the exposure of the Texas Windstorm Insurance Association passed the Texas House yesterday 134-11. Before S.B. 1702 can become law, however, it will need to be reconciled in the closing days of the session with the substantially different version that passed the Senate last month. Following amendments from Representatives Craig Eiland (Galveston) and John Smithee (Amarillo), the House version of the bill takes two actions with respect to Texas coastal building codes and insurance. One of the provisions might increase TWIA’s claims in a tropical cyclone. The other might reduce it.
S.B. 1702 as amended in the House on motion of outgoing Galveston Representative Craig Eiland extends the time some coastal property owners with property that does not comply fully with building code standards a reprieve from somewhat tougher building standards until 2015. Thus, for two more years during which TWIA’s reserves, even measured in the most optimistic way, are inadequate to pay for large storms, the House has apparently voted to actually increase TWIA’s exposure to risk. This increase in exposure occurs because the premium surcharges on the these high risk properties are limited by the combinations of sections 2210.260(f) and 2210.259(a) of the Texas Insurance Code to 15%. This value is likely insufficient to match the additional risk posed by these non-compliant properties.
A second provision of S.B. 1702 as amended in the House, however, one added by House Insurance Committee Chair John Smithee of Amarillo, might have a counterbalancing effect on TWIA exposure. It would condition eligibility for TWIA insurance after 2015 for homes and other property with values over $250,000 on compliance with stricter TWIA building standards. “Alternative certification” would not be available. There is no estimate that I have seen of the number or value of such properties that are currently insured by TWIA but out of compliance.
Based on my reading of the House Journal (pp. 3830-31), here’s the House version of the statute.
SECTION____. Section 2210.260(d), Insurance Code, is amended to read as follows: (d) Except as provided by Sections 2210.251(d), (e), and (f), a person who has an insurable interest in a residential structure that is insured by the association as of August 31, 2012, but for which the person has not obtained a certificate of compliance under Section 2210.251(g), must obtain an alternative certification under this section before the association, on or after August 31, 2015, may renew coverage for the structure.
SECTION ____. Subchapter F, Chapter 2210, Insurance Code, is amendedby adding Section 2210.2581 to read as follows: Sec. 2210.2581. MANDATORY COMPLIANCE WITH BUILDING STANDARDS; CERTAIN STRUCTURES. Notwithstanding Section 2210.251, Section 2210.258, or any other provision of this chapter, after December 31, 2015, the association may not issue or renew insurance coverage under this chapter for a structure with an insurable value of $250,000 or more unless the structure complies with the applicable building code standards, as set forth in the plan of operation.
Although this bill may have some effect on individual TWIA policyholders, it is unlikely to have any significant effect on the ability of TWIA to pay claims following a major storm. Absent a special session of the Texas legislature, it now looks as if that issue will need to await the 84th legislature two years hence in order to be addressed. And whether S.B. 1702 passes or not, coastal Texas property holders will be at serious risk in the interim.