Before the end of the last Texas legislative session, the Texas legislature ended their Texas Windstorm Insurance Association (TWIA) reform stalemate and passed a comprehensive reform bill it hopes will better prepare TWIA for future catastrophes. The bill was sent to the governor, but he has yet to sign it.

The recently passed TWIA bill requires that claims be filed within a year, it establishes a task force that will examine wind insurance issues and TWIA operations throughout TWIA (and which will report back to the Texas legislature in 2012), and it limits policyholder lawsuits to twice the amount of damages if the policyholder can prove that TWIA intentionally withheld a legitimate claim.

Part of what the TWIA bill is attempting to do is limit litigation from the policyholder. By lowering the amount a policyholder can sue for, it discincentivizes people from suing TWIA when TWIA fails to fulfill its insurance obligations. Additionally, lowering the possible penalty TWIA faces for treating its customers improperly means that TWIA faces a smaller risk and is less incentivized to act appropriately.

Oh, and TWIA’s board of directors also voted to raise rates by 5%. And to make matters worse, TWIA’s board signaled that it plans on yearly 5% increases until it feels rates are adequate to cover potential claims.

All in all, TWIA’s policyholders appear to be much worse off going forward.