Rising Homeowners Insurance Premiums Challenge Housing Affordability in Texas
The increasing expense of owning and maintaining a home is a growing concern for many Texans, and the rising cost of homeowners insurance is a significant factor. A recent report from the Texas Comptroller of Public Accounts highlights the issue, focusing on the impact of higher premiums and deductibles on homeowners.
The Texas State Capitol building.
Some homeowners are exploring self-insurance – foregoing traditional insurance to save money for potential property damage. This shift is partly driven by events in other states. In California, Florida, and Louisiana, high expenses from natural disasters have prompted insurance companies to limit offerings. Even in Texas, some insurers are reevaluating their presence. For example, Foremost, a division of Farmers Insurance, is reducing operations in Texas, and Progressive has limited sales of homeowners policies, noting that severe storms in Texas accounted for nearly 40 percent of the company’s losses in the second quarter of fiscal year 2024.
Daniel Oney, Ph.D., research director at the Texas Real Estate Research Center at Texas A&M University, notes that while Texas may not have the highest rates in the U.S., 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,” Oney states. “When claims are filed, the insurance companies pay and then recover from reinsurers. Some of the current price increases come from storms that happened a couple years ago.”
Data from the Texas Department of Insurance (TDI) shows a sharp increase in premiums beginning in 2021.
Even the Texas Windstorm Insurance Association (TWIA), the state’s insurer of last resort for coastal property owners, has requested a 10 percent rate increase. However, TDI did not approve the request, with Insurance Commissioner Cassie Brown’s statement indicating that TWIA could cut expenses before raising rates for policyholders. The Texas Legislature may address TWIA’s funding structure in the upcoming session.
Homeowners who do not qualify for TWIA coverage can explore rates from the Texas FAIR Plan if they have been turned down by at least two insurance carriers.
The Complexities of Homeowners Insurance
Purchasing a home involves significant decisions about insurance coverage. Many homeowners opt for the HO-3 policy, which covers all perils for the home and personal property. Homeowners should use resources like the TDI’s home insurance guide and comparison tool, and consult with an insurance agent, to avoid being under- or over-insured.
Going Bare
As home prices and insurance premiums rise, some homeowners are choosing to forgo insurance, a practice known in the industry as “going bare.” A May 2024 survey conducted by ClaimGuide revealed that 23 percent of U.S. homeowners have adjusted their spending habits to offset rising insurance premiums. Among these, 90 percent are dining out less frequently, 81 percent are traveling less, 61 percent are cutting back on groceries, and 21 percent are reducing spending on medications.
Factors such as income, age, race, mortgage status, and the age and location of the home influence the likelihood of a household going without insurance. Oney explains, “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 notes that uninsured homeowners are often found in smaller markets with lower incomes, where premiums pose a larger financial burden.
The Consumer Federation of America estimates that 6.1 million U.S. homeowners (7.4 percent) lacked homeowners insurance in 2021. Using 2022 data from the U.S. Census Bureau, ClaimGuide found that Texas had the fourteenth-highest percentage of uninsured homeowners at 9.5 percent, exceeding 1.1 million.
Legislative Focus on Insurance Costs
The state of Texas regulates the insurance industry. Texas follows a file-and-use system, which allows insurers to implement rate changes before receiving official approval from TDI. However, these changes must meet certain standards. The Legislature is studying this issue. The House Committee on State Affairs is examining the economic impact on insurance premiums, including factors contributing to insurance provider withdrawals from certain markets. The Senate Business and Commerce Committee plans to increase consumer transparency to facilitate better coverage decisions and to recommend ways to ensure a competitive and affordable insurance market.
The 89th Legislature will have an opportunity to address the escalating cost of homeowners insurance during its session beginning on January 14, 2025.
Texas Comptroller Glenn Hegar commented, “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.”
