Insurance claim denials on the rise in Texas

Insurance companies operating in Texas closed almost half the claims filed by homeowners last year without paying anything, part of a rising trend that is shifting more costs onto property owners, according to a new analysis.

Weiss Ratings, an independent rating agency, found that 47% of claims filed to the insurers were closed without payment. The rate has crept up steadily in recent years, from 35% in 2016, and is higher than the national rate of 42%.

Doug Quinn, the director of the American Policyholder Association, a national nonprofit that advocates for policyholder rights, called the Texas numbers "appalling."

"Imagine having your TV commercial come on and say, hey, send us 100% of the premiums we're asking for, but 50% of the time, your claims are going to get denied with no payment whatsoever," he said.

Insurance affordability is a major issue in Texas as premiums have skyrocketed statewide amid more frequent and severe weather events. This year, state lawmakers pledged to tackle rising home insurance costs but failed to pass some of their most ambitious reforms.

Quinn and other experts pointed to several reasons for the increase in home insurance claims closed without any payment.

Insurers are scaling back the types of damage they cover and raising deductibles, meaning homeowners must pay more to move forward with a claim. Homeowners are also less likely to challenge denials.

"There always has been some percentage of the claims that are not valid claims," said Martin Weiss, who founded Weiss Ratings in 1971 and shared the analysis with Hearst Newspapers. "That's just the nature of the business. But 40%? 50%? No, that's never been the case."

Representatives of the insurance industry said that some claims are found to be fraudulent but that most are closed without payment because the cost of repairs is less than the homeowners' deductible.

The number of unpaid claims might be increasing as companies raise minimum deductibles, "therefore raising the threshold," Richard Johnson, the director of communications and public affairs at the Insurance Council of Texas, a nonprofit trade organization for insurers said in an email.

Weiss Ratings' analysis found that 10 insurers in Texas closed more than half of their claims last year without making payments to homeowners, and more than 60% of claims to two companies -- Lemonade Insurance Co. and Spinnaker Insurance Co. -- went unpaid.

Several of those insurers disputed the findings, including Allied Trust Insurance and Allstate, which called the analysis "misleading" and said it doesn't "consider the different coverages that customers choose in their insurance policies."

A spokesperson for Lemonade said the figures "don't align with our data," and the majority of the company's claims were for renter policies, which are grouped into the homeowners dataset. Spinnaker didn't respond to a request for comment.

The data Weiss Ratings used in its analysis comes from company filings collected by the National Association of Insurance Commissioners, a trade group representing state insurance regulators. Weiss said the data excludes flood-related home claims, which aren't covered by private insurers. Several insurers said their closed claims data did include closed flood claims paid under a federal policy.

Deductibles rise

Many homeowners' claims are closed simply because they can't afford to pay the deductible, the amount of money they owe out of pocket before a claim will be covered.

Over the past decade, insurers have raised those thresholds as they look to shed liability in the face of mounting losses. And many homeowner policies carve out specific perils, such as wind or hail, and charge higher deductibles to cover them.

For example, in Central Texas, a policy for roof damage during a hailstorm might have a deductible that exceeds $5,000. Many homeowners' policies written in coastal Texas include a 2% to 3% deductible for wind damage. That means the owner of a home valued at $300,000 could be on the hook for $9,000 before their insurance policy kicks in for a new roof after a hurricane.

Regina Johnson, who has lived in her home in northeast Houston for 20 years, filed a claim shortly after the derecho storm tore across the city in May 2024 and damaged the exterior of her home and air-conditioning unit. That's when she learned her deductible was $4,800.

"Who has $5,000 laying around?" she said. "I wish I did, but I don't."

Unable to pay the deductible, Johnson's home insurer closed the claim without payment. She paid out of pocket to fix her air-conditioning unit and is tackling other repairs bit by bit.

Other homeowners' claims are simply denied, one strategy in the larger insurer playbook to increase profits, said Jay Feinman, a professor emeritus at Rutgers Law School and the author of "Delay Deny Defend: Why Insurance Companies Don't Pay Claims and What You Can Do About It."

The book's title refers to insurers delaying payment on claims, denying them outright and defending against litigation, an approach Feinman says property insurers have relied on since the 1990s.

In a May hearing on Capitol Hill, Quinn of the American Policyholder Association told U.S. Sen. Josh Hawley, a Republican from Missouri, that it was "industry standard" to deny or low-ball homeowners' claims after natural disasters. Insurers disagreed and said they pay claims fairly.

'A shift in insurance'

It can be difficult for consumers to fight insurance denials.

In 2017, Texas enacted a law that made it harder for homeowners to challenge insurers who denied claims and lowered penalties for companies that wrongfully did so.

At the time, lawyers and consumer advocates warned the bill would "embolden" insurance companies to delay or deny weather-related claims. That's exactly what appears to be happening, said Ware Wendell, the executive director of Texas Watch, a consumer advocacy nonprofit, as homeowners' claims closed without payments in Texas have risen sharply since then.

In a statement, Mistie Hinote, a spokesperson for the Texas Department of Insurance, said that if a policyholder thinks a claim denial or closure is unfair, they can file a complaint with TDI.

Hinote said the agency "collects and analyzes multiple data points to include information about claims closed without payment to develop a baseline understanding of the marketplace and to identify insurance companies that demonstrate a pattern."

When Danita Mullins' claim was denied, she was afraid to fight it and risk being dropped by her insurer.

After Hurricane Beryl hit Houston last summer, shingles torn from Mullins' roof covered her yard in Clear Lake. She called her State Farm agent, who told her to get an estimate from a roofing company. The roofer said she needed a full replacement. The State Farm adjuster disagreed.

"They said that 'we think only part of your roof has been damaged,'" she recalled. "'We don't think it's a total replacement and your deductible is more than the replacement. So you just have to pay out of pocket.'"

She asked for a second opinion -- and then a third. State Farm authorized roughly $1,500 worth of repairs, far less than their $9,300 deductible. After their claim was denied, she and her husband finally paid for a new roof out of pocket, at a cost of $17,000. A spokesperson for State Farm said the company was committed to paying customers what they are owed and that many factors affect claim payouts, "including the type of loss and the amount of a customer's deductible."

Mullins said that if her mortgage company didn't require her to carry home insurance, she'd drop her policy.

"Fundamentally, what we see in this is a shift in insurance," said Doug Heller, the director of insurance at the nonprofit Consumer Federation of America, "moving from being a protection product to a compliance product."