Research & Commentary: Texas Windstorm Insurance

Published July 13, 2009

Texas is a model of fiscal stability compared to most other states–with one glaring exception. Texas is one hurricane away from bankrupting its state-run wind insurance pool. The Texas Windstorm Insurance Association (TWIA), Texas’s insurance market of last resort for coastal property owners who don’t have private insurance, is living on borrowed time and borrowed money.

Coastal insurance rates are priced below market and below the risk posed by coastal properties. This makes coastal voters happy, but it is unfair to inland taxpayers and fiscally irresponsible. The huge damage claims paid after Hurricane Ike wiped out TWIA reinsurance and catastrophe reserves.

Texas legislators struggled last session to keep coastal voters happy and also stabilize TWIA with new funding sources. The legislature made some changes to windstorm law that improved the process, but rates remain artificially low.

The real problem with the Texas property insurance market lies not with any deficiency in the regulatory system but in the state’s reliance on a residual market to cover its windstorm risk. By reducing the risks involved with owing a coastal home, the government is rewarding risky behavior and instilling a false sense of security.

An important part of a sound disaster preparedness plan is to encourage homebuilders to avoid building in unsafe areas. Instead of the state using taxpayer money to try to figure out where the risky areas are and then mandating people don’t build there, the market can quickly and accurately provide that information through insurance prices.

Instead of encouraging disaster mitigation, the current system under TWIA subsidizes construction in hurricane-prone areas by forcing taxpayers across the state to pay for insurance for people choosing to move into such areas. Thus Texas taxpayers are subsidizing disasters.

The cost of maintaining the TWIA subsidies is an unnecessary burden for the state’s taxpayers, and TWIA creates a system that fundamentally acts against its primary goal of mitigating the physical and financial aftermath of a hurricane.

TWIA was never meant to be the chief provider of windstorm insurance for Texans. It was intended not to compete with the private market and to act only as an “insurer of last resort” covering homes otherwise unable to find sufficient coverage. Due to the expensive nature of covering coastal homes and the politicization of the rate-making process, rates have been forced down to the point where few private insurers can compete and few are willing to try.

The following articles examine the Texas Windstorm Insurance Association and its reform possibilities from a free-market perspective.


Legislators Guide to the Issues: Texas Windstorm Insurance
This legislative guide, published by the Texas Public Policy Foundation, examines the facts about TWIA and makes policy recommendations that would encourage a more competitive market less affected by politics.

Reversing a Rising Tide: Goals for Reforming the Texas Windstorm Insurance Association
This policy study by the Mercatus Center examines the consequences of TWIA on the homeowners insurance market and proposes several policy measures.

Bad Idea Blowing an Ill Wind for Insured
Eli Lehrer of the Competitive Enterprise Institute discusses TWIA’s recent fiscal issues following Hurricane Ike and the importance of private reinsurance in covering coastal areas.

Consumers Lose with Texas’ Burdensome Insurance Regulations
This piece from the Texas Public Policy Foundation discusses the burdensome nature of Texas’s rate regulation process and its role in TWIA’s current funding crisis.

Regulators OK 12.3% Windstorm Insurance Rate Hike
This article from the Houston Chronicle, written by Purva Patel, covers the recent TWIA rate hikes and the current dire financial condition of the windstorm fund.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at and PolicyBot, Heartland’s free online research database.

If you have any questions about this issue or The Heartland Institute, you may contact me at 312/377-4000 or [email protected].