From May 2022 to May 2023, home insurance rates in Texas increased an average of 27%, compared to an average of 16% the year before. This means altogether, homeowners in Texas are paying approximately 46% more in premiums compared to two years ago, according to the 2023 Policygenius Home Insurance Pricing Report.
Based on these rate increases, the number of severe weather events that have plagued the state, and the increase in private home insurance companies that have stopped writing policies in high-risk areas , many believe Texas is in the midst of a home insurance crisis similar to those happening in California, Florida, and Louisiana.
However, that might not be the case. Unlike those states, insurance companies in Texas have largely stayed put — even if they’re pulling out of certain areas of the state.
Here’s a rundown of why home insurance rates in Texas will likely continue to rise, the role these increases have played in stabilizing the Texas home insurance market, and ways homeowners can reduce their premiums.
Why home insurance rates in Texas are increasing
Home insurance premiums in Texas have increased at an alarming rate the last few years. And the reason for this is fairly straightforward: Texas’ immense size and geographical location means it experiences just about every weather event under the sun, and they’re only getting more frequent and severe. [1]
When you combine this with the fact that new home construction in Texas is currently outpacing that of any other state, it means insurers are having to pay out more in property damage claims than ever before. [2]
Texas Department of Insurance approved over 2,000 rate increase requests in 2022
The Texas Department of Insurance approved 2,253 home and auto insurance rate increase requests in 2022 alone, [3] with the total of some approved rate increases ranging from 20% to 30%.
Only five other states (Arizona, North Carolina, Oregon, Illinois, and Utah) had similarly sized rate increases. [4] And of the 10 highest approved rate increases nationally in Q4 of 2022, Texas insurers accounted for four of them.
Company | Approved rate change in Q4 2022 (%) |
|---|---|
26% | |
25% | |
12% | |
5% |
Source: Texas Department of Insurance (TDI)
As a result, the average cost of homeowners insurance in Texas increased an average of 27% from May 2022 to May 2023, according to a Policygenius analysis of 1,815 policies that were renewed in Texas during that time period. Increasingly severe natural disasters
With its close proximity to the Gulf Coast and Tornado Alley and its diverse geographical landscape, Texas insurers and homeowners have a large variety of natural disasters to contend with.
While the home insurance industry’s $6.4 billion in claim payouts for 2022 were 39% lower than the previous year, losses were still 12% higher than 2020. [5]
Texas home insurance losses from 2009 to 2022
Year | Losses (in billions) |
|---|---|
2009 | $3.7 |
2010 | $2.8 |
2011 | $4.2 |
2012 | $3.3 |
2013 | $3.0 |
2014 | $3.5 |
2015 | $4.1 |
2016 | $7.2 |
2017 | $6.8 |
2018 | $4.0 |
2019 | $5.9 |
2020 | $5.7 |
2021 | $10.5 |
2022 | $6.4 |
Source: Texas Department of Insurance, Insurance Council of Texas
Here are some of the most common causes of losses in Texas and a big reason for the massive rate increases across the state in recent years.
Hurricanes: With 64 hurricanes making landfall in Texas since 1854, hurricanes are one of the state’s leading causes of home insurance claims. In 2022, hurricanes in the U.S. caused an estimated $53 billion in insured losses.
Tornadoes: Texas averages the most tornadoes annually of any U.S. state — averaging 136 per year. The 160 tornadoes in Texas in 2022 ranked second to only Mississippi, which had 184.
Hailstorms: Despite having fewer hailstorms compared to 2021, the 458 hail events in 2022 were more than any other state. And so far in 2023, losses from hailstorms in May alone are estimated to be over $1 billion, and the most recent wave of storms in September 2023 also have the potential to surpass $1 billion.
Wildfires: As of 2022, Texas has the third highest number of homes at risk of severe wildfires, behind only Florida and California.
Ice storms: While ice storms in Texas are relatively rare, in recent years they’ve become both increasingly common and destructive. In 2021, Texas home insurers paid out $10.5 billion in losses to customers, with an estimated 83% of those losses attributed to the state’s extreme cold snap in February 2021 that left millions without power. And in late January 2023, Winter Storm Mara left around 170,000 homes without power and caused significant damage in Central Texas.
Source of data: Insurance Council of Texas, Inside P&C, and the National Oceanic and Atmospheric Administration.
Inflation & higher reconstruction costs
Home replacement costs, which is the amount it costs to rebuild a house in the event it's destroyed, saw a cumulative increase of 30% nationally from 2018 to 2022 — outpacing the 21% cumulative rate of inflation during that span. [6] The higher reconstruction costs are largely related to supply chain delays and labor shortages from the COVID-19 pandemic, which caused both claim payouts as well as home insurance premiums to increase.
In general, when home replacement costs go up, the amount of dwelling coverage on a policy needs to increase as well to reflect the higher costs and to ensure the house can be fully rebuilt. And to ensure they’re not paying out more in claims than they’re earning in premiums, insurers have had to increase rates drastically the last few years to account for the higher cost to rebuild homes.
Is Texas experiencing a home insurance crisis?
While both the property insurance industry and homeowners in Texas have faced enormous headwinds in recent years, the home insurance industry likely isn’t facing a crisis like that of neighboring states Louisiana and Florida.
Why Texas may be on the cusp of a home insurance crisis
The state of Texas averaged 9 disasters per year from 2018 to 2022 that cost over a billion dollars in damage, after seeing an average of 6.2 per year from 2010 to 2019, and 2.5 per year from 2000 to 2009. [7] This indicates that the effects of climate change over the last decade have had a distinct impact on the severity of natural disasters in Texas, and this will likely continue to be the case in the years to come.
Furthermore, Texas is experiencing disasters that neither utility companies nor the state’s insurance actuaries (the people who predict and price risk) could have ever envisioned. When the February 2021 cold snap hit the state, millions of homeowners were left without electricity in large part because utility providers didn’t account for scenarios like a deep freeze when they constructed the state’s power grid.
Similarly, up until the cold snap occurred, home insurance actuaries in Texas never accounted for these types of conditions either when determining the price of home insurance policies. This is the main reason why state insurers had a combined loss ratio of 104% in 2021, which means they had to pay out more in claims than what they earned in premiums. [8]
These unexpected and pricey disasters, along with the high number of billion-dollar disasters since then, have led reinsurance companies (which provide insurance to insurance companies) to question the ability of Texas insurers to accurately model and price risk. And as a result, they’ve increased their own rates on insurance companies, who have passed a lot of these costs onto policyholders via 2,253 rate increase approvals in 2022.
How the state has managed to avoid a crisis up to this point
While the sharp increase in premiums has largely come at the expense of Texas homeowners, the state’s insurer-friendly “file and use” regulatory system — which allows insurance companies to increase rates even before the state’s insurance department has reviewed the rate filing — has allowed Texas home insurers to remain profitable despite the increase in losses and reinsurance retention rates.
The state’s flexible regulatory environment is a big reason why few, if any, home insurance providers have left Texas or stopped insuring homes outright the last few years. And it may help Texas avoid a home insurance availability crisis.
What Texas homeowners can do if their policy is canceled or nonrenewed
If your home insurance is canceled or nonrenewed, contact your insurance agent immediately to find out the reason and see if there are any circumstances under which your policy could be reinstated. If their reason is related to your home’s increased exposure or risk, ask what specifically caused your exposure to increase and whether there are any upgrades you could make to your property or additional steps you could take to keep your coverage. If your home is in an area of Texas with a high risk of hurricanes, hail, wildfires, ice storms, or tornadoes, taking steps to fortify or retrofit your home to prevent expensive damage could make your property significantly more insurable.
Here are some different ways to disaster-proof your home:
Have a waterproof or wind-resistant roof installed
Consider impact-resistant garage doors, windows, and doors
Make sure your home is fitted with roof-wall attachments that use double wraps
If you’re not sure where to begin, contact a wind mitigation inspector for an assessment.
How Texas homeowners can reduce their home insurance premiums
While home insurance rates in Texas are skyrocketing, there are several different ways to get your costs down to a reasonable level.
Compare quotes from multiple companies. At least once a year, set aside some time to compare home insurance rates from at least three companies to ensure you aren't missing out on a better deal with a different provider. Policygenius agents can help you do this.
Bundle your home & auto insurance. One of the most effective ways to lower insurance costs is to bundle your home and auto insurance. When you purchase your home and auto policies through the same company, you can save as much as 30% each year.
Raise your deductible. Opting for a higher deductible can help you pay lower premiums each month. Just make sure you have enough in savings to cover the higher out-of-pocket costs.
Don’t file small claims. Since your claims history directly impacts the cost of your home insurance, avoid filing a claim for smaller incidents that wouldn’t cost you too much to just pay yourself out of pocket.
Learn more >> Home insurance discounts & savings
