Fixing TWIA for this hurricane season will require a two-thirds vote

Section 39 of Article III of the Texas Constitution reads as follows:

Sec. 39.  TIME OF TAKING EFFECT OF LAWS; EMERGENCIES; ENTRY ON JOURNAL. No law passed by the Legislature, except the general appropriation act, shall take effect or go into force until ninety days after the adjournment of the session at which it was enacted, unless the Legislature shall, by a vote of two-thirds of all the members elected to each House, otherwise direct; said vote to be taken by yeas and nays, and entered upon the journals.


This constitutional provision, which the legislature can not change, means that unless a windstorm bill is passed that is acceptable to two thirds of both houses, it will not take effect until about September 1, 2013, well into hurricane season.  And that means even if a bill is passed — but passed by less than the constitutionally required super-majority —  all that stands between the weather and a major problem in Texas between now and September could well be less than $1 billion.  If so, Texas runs the serious risk of an insolvent insurer that covers 62% of the exposure for real property — residences, businesses, government facilities — unable to pay claims.  Without making things too scary, it might not be able to pay even 50% of clams.

This means two things.

Thing 1) All sides of this debate need to have some flexibility and take very seriously their obligations as legislators.  If there is deadlock, or even if there is simply less than a super-majority in favor of one bill, legislators might consider lowering the stakes.  If you can’t get a really good bill — and I fear that is probably where we are right now — put something in place that people can be confident will not be etched in stone. I would suggest that either of the two alternative “minmalist, last-minute fixes” I proposed this month qualify. But there are alternatives that might also suffice.

Thing 2) If no bill passes or a bill passes without two-thirds support, we need to turn urgent attention to what is actually going on in TWIA.  It is attempting to obtain a pre-event “Bond Anticipation Note” so that they would at least have about $700 million with which to pay claims on their $70 billion plus of total exposure.  Without that, we are down to a Catastrophe Reserve Fund that stands at $180 million and possibly less in light of both continuing Ike litigation and some severe storms this past month. We also need to pay heightened attention to TWIA’s efforts to obtain reinsurance — and the terms of that reinsurance. The details matter here.  Where will the reinsurance attach?  Will it leave a gap?  Does the reinsurance cover one storm (occurrence) or does it permit “reinstatement” — an ability to cover multiple storms, although possibly for an additional premium.  And how much will an over-a-barrel TWIA have to pay to the reinsurance industry, which has historically charged prices of five times the expected value of risk assumed, under these circumstances?  Every dollar spent is one less dollar available for succeeding years.

So, high stakes in the days ahead. We’ll keep a watch out and I urge you to make sure your legislators understand the importance of the issues here both for the Texas coast and in the rest of the state.