Commissions paid to insurance agents by the state’s windstorm insurance pool should be lowered to levels that are in line with what private insurance carriers pay agents. That is the recommendation of a highly paid consultant hired to give Texas insurance regulators ideas for ways to cut costs in TWIA.
This is a great idea that should be implemented. Why didn’t we think of it? Oh, wait, we did – more than 2 years ago.
Currently, agents get paid 16% for every TWIA policy they sell. Private insurers pay their agents between 7% and 10%. The consultants, Alvarez & Marsal Insurance Advisory Services LLC, issued a series of recommendations that included reducing TWIA agent commissions to 10% for new business and 7% for renewals.
In 2010, we investigated agent commissions and discovered that reducing agent commissions to 10% would save TWIA more than $14 million a year just in agent costs. Additionally, we argued then – and the consultants claim now – that lowering commissions removes an incentive for agents to drive business to TWIA, resulting in even more savings for the wind pool.
TWIA should be the insurer of last resort. For too many coastal homeowners, however, it is the windstorm insurer of only resort. One reason that private insurers have difficulty competing for business along the coast is that the gatekeepers – agents – make more money when they drive customers to TWIA instead of private insurers.
TWIA is a mess and no single recommendation will be enough to fix it. But, the consultants label this one of their “top recommendations.” We agree.