Texas Home Insurance Market Faces Rising Costs and Legal Challenges

Texas continues to face significant challenges in its home insurance market, as highlighted by a recent report from "Unlocking America’s Future" and discussions led by Texas House Democrats. The state ranks third highest nationally for average home insurance premiums, which have surged 55% since 2019, contributing to a notable portion of low-income homeowners lacking coverage. This trend reflects underlying market instability, evidenced by increased reliance on state-run insurers of last resort, such as the Texas FAIR Plan and Texas Windstorm Insurance Association. Legislative factors, including the passage of House Bill 1774 in 2017, have influenced the current environment by modifying the legal landscape around insurance claims disputes. Critics argue the law limits homeowners’ ability to challenge claim denials and reduces penalties for insurers, while industry representatives maintain it curbs excessive litigation and attorney fees, offering a clearer path for consumers. Data from the Texas Department of Insurance shows a rise in claims closed without payment, though reasons vary from legitimate denials to claims falling below policy deductibles. Both insurance stakeholders and policymakers underscore the importance of incentivizing resilient building practices to mitigate losses from Texas’s diverse and severe weather risks. Officials point to models like Alabama's, which integrates homeowner discounts for storm-resistant upgrades, preventing claims by reducing property damage. Efforts to promote resilient construction are viewed as critical, though approaches to implementation may differ between legislators and insurers. Texas’s unique risk profile, including frequent hurricanes, tornadoes, hail, wildfires, and increasing earthquake activity, drives the high cost and volatility in the home insurance market. Recent data shows insurers have experienced financial strain, paying out more in claims than collected in premiums during disaster years such as the 2021 winter storm. This dynamic underscores the complex balance between market pricing, risk exposure, and policyholder protection in Texas.