Storms straining insurance sector

WASHINGTON -- As another violent storm swept the Houston region, blowing out office tower windows downtown and leaving houses straining under toppled trees, the state's property insurance sector is facing increasing questions about its sustainability.

With extreme weather events increasing along with construction costs, insurance premiums continue to rise at a fast pace. Insurance companies are already warning property owners of another steep rate increase this year, even as homeowners opt for decreasing levels of coverage in an effort to try to keep their costs down.

The extent of the damage from the recent Houston-area storm is still being assessed by insurance companies, but Roger Newman, an assessor in Katy, said growing loopholes in home insurance policies would likely leave many homeowners far short of the money they need for repairs.

"They'll start getting those low-ball offers in a week or two, and our phones will start ringing," he said.

The dual challenge of extreme weather events linked to climate change and rising repair costs driven by inflation is putting the nation's property insurance sector under increasing strain, with Texas one of the states most affected.

This year, S&P Global Market Intelligence reported double-digit increases in many states' home insurance markets, with Texas seeing a jump of more than 23%, the highest in the nation.

"It all goes back to inflation, increased frequency of severe storms and the legal environment. All those things are contributing," said Richard Johnson, communications director for the Insurance Council of Texas, which represents insurance companies. "Companies were taking losses for a couple years. Rates are increasing to bring companies back to even and profitability."

For property owners, keeping up with the increased rates is becoming increasingly difficult.

Houston already has one of the highest rates of uninsured homes in the nation, with 10% of its homeowners opting to go without insurance, according to a recent report from the nonprofit Consumer Federation of America.

In South Texas, the nonprofit Come Dream Come Build, which constructs low-income housing, is weighing how much longer it can continue to build after seeing a 30% increase in property insurance premiums this year, with its carrier warning that a similar increase was likely coming in 2025.

"Some developers are already off-loading multifamily properties because the math doesn't make sense," said Daniel Elkin, director of policy at CDCB, which is based in Brownsville. "If we can't get these properties insured at the reasonable cost, that will break the affordable housing model."

The rapid increase in insurance costs is drawing scrutiny from state and federal regulators. The Treasury Department last year ordered insurance companies to hand over five years worth of premium and claims data to assess the degree to which homeowners are being put at financial risk by shifts in the insurance market -- work that is now being done by the National Association of Insurance Commissioners, which represents state insurance regulators.

The expectation is that the data will allow homeowners and regulators to compare insurance premiums and claims across ZIP codes, giving insight into how insurance companies operate.

"The insurance industry has a history of operating behind an opaque curtain," said Doug Heller, director of insurance at the Consumer Federation of America. "It's important to understand the gap between the insurance we have and the insurance we think we have, especially when the risk is increasing."