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Homeowners Insurance in Texas

Texas is one of our nation’s largest states, giving homeowners plenty of options when looking to purchase a home. You can settle near the coast in Galveston or Houston. You can immerse yourself in the city life of Austin or Dallas.

However, homeowner’s insurance in Texas isn’t like other states. Its varied climates can expose homeowners to a variety of natural factors, such as hurricanes and tornadoes, that can affect premiums.

So which weather-related issues can affect your policy the most? What else should homeowners know before purchasing a new policy? In this guide, we’ll cover the differences between homeowners insurance in Texas compared to other states.

Understanding High Premiums

Texas has some of the highest home insurance premiums in the country. Back in 2011, the Texas Office of Public Insurance Counsel ranked Texas as having the third-most-expensive home insurance premiums in the country with a $1,440 average premium. The state hasn’t improved much: Insurance.com ranked Texas seventh in its 2016 ranking with a $1,945 average premium.

Of course, there are many factors that go into home insurance premiums, including catastrophic weather events.

Catastrophic Weather

Property Claim Services defines catastrophic weather events as any storm that causes over $25 million in insurance losses.

This puts Texas in a tight spot. The state is prone to hurricanes on the Gulf Coast, tornadoes inland, and hailstorms everywhere. These weather events help make Texas among the most costly states for insurers to cover. These costs, in turn, are passed onto homeowners.

“Hurricanes, tornadoes, and hail help make Texas among the most costly states for insurers to cover.”

In 2015, Texas insurers reported losses of $3.2 billion due to catastrophic weather events spread over 466,250 claims. State insurance claims were more than triple Massachusetts, the state with the second-highest total.

States with highest catastrophic weather event insurance costs
States with highest catastrophic weather event insurance costs


Yet despite the significance of weather-related events on home insurance premiums, the insurance industry itself also plays a part in rising costs.

High Insurance Industry Costs

The home insurance industry is still quite outdated, relying on agents and old models of doing business. In an earlier post, we highlighted how agent commissions and salaries lead to 20 percent higher monthly premiums (indeed, Kin customers save on premiums precisely because we cut out agents).

Yet these costs are even higher in Texas: a 2012 Texas Department of Insurance (TDI) report to the Senate Business and Commerce Committee showed that industry-related insurance costs are 65 percent higher in Texas than the United States average. Included in these costs are agent commissions, advertising, and underwriting.

Unfortunately, high homeowners insurance costs in Texas aren’t limited to consumer-facing agents and companies. In fact, these companies work in conjunction with another component of the home insurance industry: reinsurance.

Increasing Reinsurance Costs

Reinsurance is, at its core, insurance for insurance companies. Insurance companies can fall into financially unstable positions if they have to pay out claims to a large number of customers at once. This is particularly true for homeowners insurance companies, where a severe weather event can trigger a large number of claim filings. Reinsurance policies help cover these costs.

Consumer-facing companies cover reinsurance costs by building them into premium payments paid by homeowners. Between 2003 and 2011, these reinsurance cost provisions doubled in Texas, resulting in higher premiums. For homeowners living in coastal cities, reinsurance costs can account for half of monthly premium payments!

Simply put, there are many factors that drive high home insurance premiums in Texas. Some of these are location-related, while others are due to the nature of how most insurance companies operate.

Yet understanding the factors that can affect your premium payments is only half the puzzle. Do you also understand what’s covered under your potential homeowners policy?

Texas Home Insurance Policies

In Texas, most homeowners insurance policies include the following types of coverage:

  • Dwelling (Coverage A): Covers home damage.

  • Personal Property (Coverage B): Covers costs of personal and home items that are damaged.

  • Other Structures (Coverage C): Covers damage to structures on your property that aren’t attached to your home, including as garages and sheds.

  • Loss of Use (Coverage D): Covers living expenses you incur while displaced from your home.

  • Personal Liability (Coverage E): Covers legal expenses should you have to appear in court or are found legally responsible for another person’s medical or property expenses.

  • Medical Payments (Coverage F): Covers medical expenses for someone that’s hurt on your property.

On the surface, it may seem like homeowner’s insurance covers most of what homeowners like you would need. However, there are several caveats, especially in a disaster-prone state like Texas.

Specifically, standard homeowners insurance policies don’t cover:

  • Flooding or earthquakes

  • Mold, except to cover damage due to a covered water-related event

  • Pests, such as insects, mice, rats, or termites

  • Wind or hail damage to shrubs and trees

In other words, homeowners need to have other types of insurance that cover these events, which include hurricane and windstorm insurance. Depending on where you decide to live, mortgage lenders may require you to have these types of coverage. And even if you don’t, it’s strongly recommended you look into these policies to avoid potential financial burdens.

So, let’s take a closer look at these other types of insurance.

Windstorm and Hail Insurance

While most mortgage lenders will require homeowners to purchase windstorm insurance, the state of Texas doesn’t require homeowners to purchase a policy. This is due in part because Texas handles windstorm insurance different from other states.

“Most mortgage companies require Texas homeowners to purchase windstorm and hail insurance.”

While other coastal states have universal insurance regulations in place, Texas favors a market system that allows counties to create their own regulations. Despite the freedom given to individual counties, the result has been a lack of consistency that makes purchasing windstorm insurance confusing for Texas homeowners.

Windstorm and hail insurance can be purchased through private insurance companies. However, homeowners may opt to go through the Texas Windstorm Insurance Association (TWIA). Established in 1971 in reaction to Hurricane Celia a year earlier, the TWIA provides windstorm and hail insurance to residents on the Texas Gulf Coast (a.k.a. Designated Catastrophe Areas).

The TWIA is considered a lender of last resort, meaning the company doesn’t compete directly with other insurance providers, and will only cover homes located in designated Catastrophe Areas. These include Texas’ 14 coastal counties and parts of Harris Country located east of Highway 146.

Certificates of Compliance

Some people may opt to build their own homes or additional structures on their property. In these cases, it’s highly recommended that all new structures adhere to windstorm specifications of your county and town.

Homeowners that build their own structures should also seriously consider obtaining a Certificate of Compliance. These certificates guarantee windstorm code compliance as stated by TDI, and are a major selling point if the property is up for sale at a later date.

“Homeowners that build their own structures should seriously consider obtaining a Certificate of Compliance through TDI or TWIA.”

Without a Certificate of Compliance, the property may not be eligible for TWIA windstorm coverage or may be subject to a very high premium.

Effective January 1, 2017, homeowners can obtain a Certificate of Compliance in the following two ways:

  1. Contacting TDI for inspections on ongoing construction.

  2. Contacting TWIA for inspections on completed construction.

Windstorm insurance simply isn’t covered under standard homeowners insurance. Texas homeowners should be aware of what to look for when purchasing since there aren’t clear regulations. This is especially true now that new regulations related to windstorm and hail insurance are now in effect.

Changes to Texas Insurance Laws

This past May, the Texas Senate passed House Bill 1774, which limits the liability insurance companies can incur when sued by policyholders after storm damage. Originally, the bill restricted liability limits to claims following hail storms, but was expanded to include most types of weather-related events, including floods, hurricanes, tornadoes, and windstorms.

The bill requires notice before a lawsuit can be filed to permit the insurer time to address any outstanding claim issues. Furthermore, the bill cuts penalties that insurers have to pay for offering too little money on storm claims.

The creation of House Bill 1774 came out of the large number of litigations following severe storms over the past several years. Insurers had even refused to offer hailstorm insurance in areas with the highest number of lawsuits.

While the new bill is meant to curb lawsuit abuse, it also limits homeowners’ abilities to file suits and collect compensation. Failure to send notice before filing a lawsuit can lead to the denial of the collection of attorney’s fees. Opponents of the bill argue the new restrictions don’t hold insurance companies accountable for unpaid or poorly managed claims.

Flood Insurance

Unfortunately, windstorm and hail insurance isn’t the only additional policy Texas homeowners should consider purchasing. Flood damage isn’t covered in most standard home insurance policies. And for much of Texas, lack of flood damage is a serious issue.

This past summer, Hurricane Harvey wreaked devastating damage across Texas and caused $180 billion in damages. Yet according to a Washington Post analysis, only 17 percent of homeowners in areas most affected by Harvey had flood insurance.

“Only 17 percent of homeowners in areas most affected by Harvey had flood insurance.”

Those without flood insurance had to rely on charity or government aid, or pay out-of-pocket to cover costs. Federal Emergency Management Agency (FEMA) grants, a common form of government aid, are capped at $33,300, which hardly covers the costs of massive home repairs and replacement costs.

Hurricane Harvey was a cold reminder of the importance of having flood insurance in Texas. Policies typically cover the following due to floodwater damage:

  • Appliances

  • Detached garages

  • Essential home systems, including central air conditioning, electric, and plumbing

  • Foundation walls

  • Personal property

  • Permanently installed cabinets and paneling

  • Valuable items

As with any policy, homeowners should be aware that flood insurance typically doesn’t cover, such as property located in basements or crawl spaces. Homeowners should also be aware of coverage limits (federal flood insurance payouts are capped at $250,000 per building and $100,000 for contents).

Understanding Flood Zones

Flood insurance premiums are based on the flood risk of the home’s location. The main metric for calculating this risk is base flood elevation (BFE), defined as the calculation elevation to which floodwater is expected to rise during a base (100-year) flood.

Flood insurance premiums decrease for every foot a home is above the area’s BFE and increase for every foot below the area’s BFE.

To get an idea of what your flood insurance premium would look like, check out Map My Risk, a free tool available by Aon National Flood Services. You can enter your home’s address to view flood risk and average area claims.

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Conclusion

Homeowners insurance in Texas isn’t like other states. New homeowners should be aware of various differences and caveats, including:

  • Separate windstorm and flood insurance should be purchased.

  • Certificates of Compliance are strongly recommended for homeowners that build their own homes or other structures on their property.

When it comes to homeowners insurance, consider Kin. We specialize in providing homeowners insurance to Florida and Texas residents, and understand how hurricanes and other weather-related events impact your policies and premiums.

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