October 2024 | by Spencer Grubbs and Kelly Langford
The Texas Comptroller of Public Accounts’ recent report, The Housing Affordability Challenge(PDF), raised the profile of an important issue for Texans: the increased cost of achieving and maintaining the American dream of homeownership. On the minds of many current and potential homeowners — and state leaders — is the rising price of homeowners insurance, including rates and deductibles.
Some have turned from insuring property by traditional means to the more drastic step of self-insuring — that is, going without commercial insurance and instead deciding (or hoping) to save money for future property damage.
After recent events, those homeowners might feel self-insurance is their only option.
In California, Florida and Louisiana, the high costs of natural disasters have caused insurance companies to limit coverage options for property owners. The Texas Department of Insurance (TDI) says 160 companies offer homeowners policies in Texas, but reports show some are choosing to reconsider doing business in the state. Foremost, a division of Farmers Insurance, is scaling back its presence in Texas, and Progressive has restricted selling homeowners policies, claiming storms in Texas accounted for nearly 40 percent of the company’s losses in the second quarter of fiscal 2024.
Daniel Oney, Ph.D.
Daniel Oney, Ph.D., research director at the Texas Real Estate Research Center at Texas A&M University, says Texas homeowners aren’t paying the highest rates in the U.S., but premium increases have outpaced the rest of the country.
“At the end of 2023, Texas had the biggest percentage point increase of any state in the last five years,” he says. “You file claims, the insurance companies pay that, then they have to get that covered by the reinsurers. So, some of the price increases we’re seeing now are from storms that happened a couple years ago.”
Data collected by TDI demonstrate a steep jump in prices starting in 2021 (Exhibit 1).
Exhibit 1:
Average Premium of Homeowners Insurance and Year-over-Year Increase in Texas, 2015-2023
Exhibit 1 data
Average Premium of Homeowner Insurance and Year-over-Year Increase in Texas, 2015-2022
Year
Average Premium
Year-over-Year Percent Change
2015
$1,782
0
2016
$1,791
0.50%
2017
$1,860
3.80%
2018
$1,916
3.00%
2019
$1,961
2.30%
2020
$1,987
1.30%
2021
$2,124
6.90%
2022
$2,374
11.80%
2023
$2,803
18.10%
Sources: Texas Comptroller of Public Accounts; Texas Department of Insurance
Even the Texas Windstorm Insurance Association (TWIA), the state’s insurer of last resort for property owners along the coast, recently sought a 10 percent premium increase for commercial and residential properties. TDI did not approve that requested rate hike, noting in a statement from Commissioner of Insurance Cassie Brown that there may be areas where TWIA could cut expenses before asking policyholders to pay higher rates and the 89th Legislature will have the opportunity to address TWIA's funding structure in the upcoming regular session.
Texas homeowners who aren’t eligible for TWIA policies can explore rates from another last-resort state plan — the Texas FAIR Plan — if they’ve been turned down by at least two insurance carriers.
Homeowners and homeowners insurance — a complicated relationship
Purchasing property like a home comes with important decisions about the type and amount of insurance coverage needed. Exhibit 2 lists the most common policy forms and coverage types for homeowners insurance. Many homeowners opt for the HO-3 insurance policy, which covers all types of perils — the industry term for causes of damage or loss — for the home and personal property. Before choosing a policy, homeowners should study available resources, such as the TDI’s home insurance guide and comparison tool, and talk to an insurance agent to avoid under-insuring, which can be costly if the home incurs damage, or over-insuring, which often means paying too much for premiums.
Exhibit 2: Homeowners Insurance – Policy Forms and Coverage Types
Policy Forms
Description
HO-1
10 listed causes of loss are covered.
HO-2
16 listed causes of loss are covered.
HO-3
All causes of loss are covered for home; 16 causes of loss are covered for personal property.
HO-5
All causes of loss are covered for both the home and personal property.
Coverage Types
Description
A
Applies to the dwelling but not the land.
B
Applies to structures on the premises other than the dwelling (e.g., garage).
C
Applies to personal property.
D
Applies to living expenses if dwelling becomes uninhabitable.
Source: Texas Real Estate Research Center
Going bare
A May 2024 survey of 1,500 U.S. homeowners conducted by ClaimGuide, an organization providing research and education on insurance, found that 23 percent of homeowners are feeling pressured to shift spending habits to offset rising homeowners insurance premiums — 90 percent of those homeowners said they are dining out less frequently; 81 percent said they are traveling less; 61 percent said they are cutting back on groceries; and 21 percent said they are reducing spending on medications. Others are choosing to increase their policy’s deductible to make premiums more manageable or, on the flip side, investing in home renovations to lower their deductibles.
As home prices and homeowners insurance premiums reach new highs, more homeowners are choosing to forgo insurance, which is what the industry calls “going bare” (PDF). Myriad factors determine the likelihood of a household going bare, including the homeowner’s income, age, race and mortgage status, as well as the age and location of the home. As more areas are designated as natural disaster-prone and too costly to insure, insurance companies are hiking rates to unaffordable levels or dropping customers altogether.
Oney says, “The primary reason people have insurance is because they have a mortgage, and the lender requires it. There’s a surprisingly large number of people that, once they own their home, will choose not to have insurance.” He explains that homeowners are more likely to be uninsured in smaller markets, where incomes are lower and premiums are a bigger burden, compared with higher-income households in large urban areas.
The Consumer Federation of America estimates 6.1 million homeowners in the U.S. (7.4 percent) lacked homeowners insurance in 2021, which amounted to approximately $1.6 trillion in property value.
Using 2022 data from the U.S. Census Bureau’s American Community Survey, ClaimGuide found that Texas had the 14th highest percentage of homeowners living without homeowners insurance, at 9.5 percent or more than 1.1 million homeowners (Exhibit 3). According to Consumer Federation of America data, Houston in 2021 had the second highest share of uninsured homeowners (10 percent) among 15 U.S. metros, behind that of Miami (15 percent).
Exhibit 3: Uninsured Homeowners by State, 2022
State
Number of Homeowners
Number of Uninsured Homeowners
Percent of Uninsured Homeowners
Mississippi
1,342,764
178,476
13.3%
New Mexico
956,743
123,718
12.9%
West Virginia
861,686
105,729
12.3%
Louisiana
2,113,178
252,969
12.0%
Alabama
2,339,582
248,005
10.6%
Alaska
329,160
33,417
10.2%
Kentucky
2,023,679
203,236
10.0%
Oklahoma
1,776,732
177,260
10.0%
Wyoming
277,106
27,638
10.0%
Florida
10,257,553
1,014,102
9.9%
South Carolina
2,446,680
239,128
9.8%
North Dakota
377,722
36,517
9.7%
South Dakota
408,009
39,144
9.6%
TEXAS
12,135,376
1,150,501
9.5%
Arkansas
1,395,735
131,122
9.4%
Source: ClaimGuide
Legislative focus
The insurance industry is regulated at the state level, but those regulations may differ greatly across states. Texas is considered a file-and-use state, which means state law allows insurance companies to apply rate changes before receiving an official go-ahead from TDI. However, those rate changes must meet certain standards, or the commissioner of insurance is authorized to issue disapproval. Other states require insurers to get approval before adjusting rates or get approval for rate changes that exceed a certain percentage, called “flex rating.”
2023 rate filings
Of the 2,923 property and casualty rate filings reviewed by TDI in 2023:
160 were withdrawn by the insurer.
100 were rejected for technical reasons, such as filing under the incorrect line of business or not providing enough information.
0 filings were disapproved by commissioner.
2,663 filings were allowed to stand or were approved.
74 percent required additional information for next steps.
Source: TDI
The Legislature recognizes the strain high insurance premiums are putting on Texans, and both chambers have chosen to study the issue. The House Committee on State Affairs (PDF) is examining the “impact of current economic challenges on the escalating costs of insurance premiums, including factors contributing to the withdrawal of insurance providers from certain markets.”
In the Senate, the Business and Commerce Committee (PDF) plans to “identify ways to increase consumer transparency to better inform coverage decisions and make recommendations to ensure a competitive and affordable insurance market for consumers.”
The 89th Legislature will have an opportunity to address rising homeowners insurance rates, among other important issues affecting Texans, when it convenes Jan. 14, 2025.
“Our state’s population growth puts pressure on our infrastructure: roads, water systems, energy and broadband,” says Texas Comptroller Glenn Hegar. “One thing that concerns me as we look to the next 15 to 20 years is the affordability of housing. As we grow, we need to ensure we have a balance for everyone in the community, and that includes affordable living for them. It’s the thing I’m focusing more on now than ever before.”
A REVIEW OF THE TEXAS ECONOMY