It's a 'bitter pill' for Texas homeowners

The cost of homeowners insurance is skyrocketing, forcing Texans to decide whether to reduce coverage, seek discounts or risk letting their policies lapse.

Rates in Texas rose an average of 10.8% last year, the biggest annual jump since 2012, according to data from the Texas Department of Insurance. The average premium soared 59.2% over that 10-year span and was up 19.5% from 2020 to 2022, during the pandemic. Last year's average was $2,374.

"It's a hard and bitter pill for Texas homeowners to swallow," said Ware Wendell, executive director of consumer advocacy group Texas Watch. "If you have a mortgage, of course the bank wants to make sure the property is insured. But as these rates go up, it's harder and harder for families to find the money to pay those bills."

Homeowners in the Lone Star State aren't the only ones feeling the squeeze. Insurers in many states are raising rates substantially and, in some cases, increasing the amount of coverage for customers' homes, which is also leading to higher premiums, said Doug Heller, director of insurance at the Consumer Federation of America.

"They can raise your premium because they're giving you allegedly more coverage without any rate increase, so you sort of have both things happening at once in an inflationary period," Heller said. "We're buying more product, as well as paying a higher rate for that product."

Why is this happening?

Climate change is partly to blame. Hurricanes, wildfires, tornadoes and other natural disasters are occurring more often, and some insurers are scaling back or have stopped writing policies in hard-hit states such as Florida, Louisiana and California to shield themselves from catastrophic losses.

"There's just no question that we're seeing more extreme weather-driven events ... and so as a result, there's just more risk of loss in the insurance markets," Heller said. "If we, as homeowners or businesses that have properties, want to offload some of the risk that our buildings will be destroyed to insurance companies, we have to recognize that there's a higher chance of that now than ever before, in some respects."

Extreme weather is also affecting the global reinsurance market. Prices for reinsurance, which insurers use to limit their risk to large losses, are climbing -- and companies are passing those increases on to customers.

Inflation is another factor. The price tag for rebuilding and repairing homes has risen in recent years as labor and materials costs have increased, which is affecting the coverage insurers are providing and the premiums they are charging, Heller said.

"You've got to give the insurance companies a little bit of latitude, because we'd rather them be a little over what it actually costs than under ... but it's really important that there is oversight by (the Texas Department of Insurance) to make sure that their algorithms and their inflation calculators aren't way off and forcing us to take more coverage than we could ever use, because then we're paying for insurance that serves no purpose," Heller said.

Because it's required, though, homeowners insurance is different from many expenses Texans take on, he said.

"This isn't like deciding that it's time to buy a new computer, and then saying, 'Wait, maybe they're too expensive, I can hold off,' " Heller said. "People have to buy this product. It's required by their lender. So, because it's a required product, the department has to constantly be fighting for consumers as its priority."

State Farm Lloyds was the top insurer in Texas last year based on premiums written, with $2.5 billion in direct premiums and market share of 18.7%, according to Texas Department of Insurance data.

Allstate Vehicle and Property Insurance Co. wrote $1.3 billion in direct premiums and had a 10% market share. Texas Farmers Insurance Co. wrote $911 million in direct premiums and had a 6.8% market share; Travelers Personal Insurance Co. wrote $631 million in direct premiums and had a 4.7% market share; and USAA wrote $496 million in direct premiums and had a 3.7% market share.

How to reduce costs

Homeowners should start by shopping the market, consumer advocates say.

Heller suggested calling agents for brand-name companies and independent agents to get options. Wendell recommended visiting helpinsure.com or opic.texas.gov to compare policies from different companies and get quotes. The sites are managed by the Texas Department of Insurance and the Office of Public Insurance Counsel.

Ask the companies what discounts they offer, what deductibles they require, and if there's a separate wind deductible, which there often is, Wendell said. Many companies assign a risk score to customers, and you should ask if there are any changes you can make to your property to improve your score and mitigate the risk of damages from weather.

Bundling home and auto insurance or home and life insurance also could result in savings, Heller said. If you have to change your deductible, he recommends making sure you understand how much you will have to pay before your insurance kicks in and how much risk you are taking on.

"Slashing your coverage is great if your home is never going to be damaged," Heller said. "But it's dangerous to assume that that will be the case."