PCI Testifies in Opposition to Texas Assigned-Risk Plan

CHICAGO, March 12 -- The Property Casualty Insurers Association of America issued the following news release:

The Property Casualty Insurers Association of America (PCI) testified today in opposition to SB 18, an assigned-risk plan for Texas property insurance that likely would increase pressure on rates for insurance consumers. Instead, PCI supports developing a financial structure for the Texas Windstorm Insurance Association (TWIA) that would provide much-needed coverage for consumers without unduly burdening the statewide insurance market.

"PCI is opposed to the establishment of an assigned risk plan for property insurance in Texas," said Joe Woods, PCI's vice president, state government relations, in comments before the Texas State Senate'sBusiness and Commerce Committee. "No state or nation has such a plan in place, and to in effect use Texas' large, influential and vibrant real estate market--and the property insurance market it supports--as the petri dish for this experiment is dangerous for consumers, the state and insurance companies. We have been told, and we agree, that TWIA in its current form is unsustainable. We do not think that it is a wise public policy exercise to throw out one problem and develop an untested program that could be an even bigger problem."

Woods told the committee that the fundamental problem with TWIA is that its "funding tower" is essentially missing its foundation and first floor, and these issues need to be remedied. The surplus that should have been building up during three relatively benign storm seasons has been used to pay ongoing claims from Hurricane Ike, and the bond market has decided that $1 billion in Class 1 securities are not marketable.

"The solution is not to throw out the whole funding structure, but to figure out a reasonable way to make it work in the future," Woods said. "PCI stands ready to embark on discussion of how to rebuild the funding structure in a manner that does not threaten the statewide property insurance market."

PCI expressed concern that the bill would shift up to $2 billion per year in TWIA losses to private insurers, and eventually consumers and the state General Revenue Fund, as well as hundreds of millions in additional costs, which could negatively impact what they must charge consumers and have statewide consequences.

"Rather than fixing TWIA's problems, this solution spreads the problem statewide," Woods said. "When an insurance company writes a policy, it is required by statute, regulations and insurance principles to have adequate surplus to assure that the risk is covered financially. When companies approach the limits of capital available for writing insurance they will be forced to balance the new assigned risks with the remainder of their book of business. Consequently, when a company is forced to write a policy in the assigned risk plan, it may be forced to non-renew a policy in another part of the state in order to maintain its capital and surplus requirements. PCI respectfully requests that the members of the Business and Commerce Committee oppose passage of the assigned risk plan in SB 18. Instead, we respectfully encourage the committee to focus its efforts on developing a financial structure for TWIA that will allow it to provide much needed coverage for coastal property owners without placing undue burdens on the insurance market statewide."

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