In the wake of the death of his bill that would have substantially reformed windstorm insurance along the Texas Gulf Coast, Texas State Senator Larry Taylor is calling on Texas Governor Rick Perry to put windstorm insurance on the agenda for a special session of the Texas legislature this summer. Since there are indications that Governor Perry may call a special session to address other issues such as redistricting, guns on college campuses, and, possibly, the little matter of the budget, the question is whether Governor Perry would add windstorm reform to the agenda.
Here’s why a special session matters. In a special session, there is no “blocker bill.” This is a provision in the Texas Senate that makes it difficult/impossible for a bill to get to the floor during a regular session unless it has 2/3 support. Thus, the votes that apparently were sufficient to block Senator Taylor from getting his S.B. 1700 before the legislature during this session, will likely not be enough to prevent it from making it to a vote in a special session. It is still the case, however, that to take effect immediately — as opposed to sometime late in the 2013 hurricane season — whatever legislation is approved will need a 2/3 vote from both chambers.
I agree with Senator Taylor that Governor Perry should place the issue of windstorm reform before a special session of the Texas legislature.
Having applauded Senator Taylor for recognizing a serious threat to his constituents from existing law, let me make clear that Senator Taylor and I do not agree on the merits of his particular bill, S.B. 1700. Although I acknowledge that the status quo is so bad that even a bad bill might be an improvement, there is much to dislike in S.B. 1700. And so, if he gets his way, I am likely to continue to urge that S.B. 1700 be scrapped in favor of better ideas or substantially modified.
Senator Taylor and I also do not agree, I think, on the magnitude of the financial problems facing TWIA. He ended his press release with the breezy assurance that he felt confident that losses from future storms will be covered. That is kind of a strange statement from someone simultaneously saying we need a special session of the legislature to deal with an urgent problem. If losses will be paid, what is the rush? And so, while I understand fully the importance of a prominent elected official not generated unwarranted panic in policyholders, there is a countervailing interest in being truthful about the risks that exist here. There’s an even stronger interest in reducing those risks if possible.
For the reasons I have set forth on this blog over the past few months, I believe the TWIA situation, is far worse than Senator Taylor asserts in his press release, closer to what would justify Senator Taylor in calling for a special session of the legislature and, actually, far worse than he and many others may realize. The legal structure on which TWIA would rely to recapitalize itself following a major storm and which would be needed to pay claims even somewhat promptly is, as TWIA itself acknowledged in a plea for reform legislation, extremely fragile.
There is a substantial risk that TWIA would not be able to raise more than $1 billion in post-event bonds and cash on hand to pay claims in a storm this summer; and the risk of a $1 billion in losses this summer is between 5 and 7%. If we take three summers as the relevant time period — because that’s when a bill from the 84th legislature might well take effect — we are talking about a risk of 14-19% of having blue roofs on the coast and no money to do repairs. One way to think about this is that we are, quite literally, playing Russian Roulette with the Texas economy for the next few years. The odds are about the same: 1 in 6.
The status quo creates too high a risk of a human-engineered disaster along the Texas coast and, derivatively, for the Texas economy.
There are, as I have pointed out, modifications of S.B. 1700 that could make it a bandaid for Texas for the next two years. That would be an OK idea. There are, as I have noted, alternative schemes such as an assigned risk plan that provided adequate returns to insurers that would be a more promising structural solution for the long run. What Governor Perry I hope becomes immediately educated about by legislators up and down the State of Texas, however, is the disaster looming if a major storm hits before the next legislative session and the insurer that covers 62% of all property there doesn’t even have close to enough money to pay for windstorm losses. Governor Perry should be motivated to take those lessons seriously if he wants to remain a popular figure in Texas or elsewhere in the United States. And those legislators should be mighty motivated to plea because voters will otherwise look to them as the people that failed to act and left the Texas coastal economy in shambles when they knew of a clear and present danger.