Texas Insurance Crisis

As inflation drives up construction costs and climate change increases the frequency and intensity of natural disasters, homeowners insurance companies are reducing the number of policies they offer in more than 20 states. In some cases, they are withdrawing from states entirely, leaving affected homeowners without coverage.

Big Brand Names in Insurance That Have Pulled Out of the Texas Home Insurance Market

1. State Farm: While State Farm continues to operate in Texas, it has scaled back certain types of coverage in high-risk areas, particularly those prone to natural disasters.
2. Allstate: Allstate has limited its new policy offerings in some high-risk regions, responding to the increasing frequency and severity of storms. Including Excluding wind in coastal areas of Texas,
3. Liberty Mutual: This insurer has also reduced its footprint in Texas, particularly in areas susceptible to frequent claims from severe weather events such as Dallas Fort Worth, Coastal Texas, and Houston.
4. Farmers Insurance: Farmers Insurance has pulled back on offering certain policies in high-risk zones, focusing more on bundling home and auto policies to mitigate risks.
5. AIG: American International Group (AIG) has ceased providing coverage through some of its subsidiaries in Texas, particularly in regions with high exposure to natural disasters.
6. Chubb: Chubb has withdrawn certain types of coverage in Texas, especially in coastal areas and other regions prone to severe weather.
7. AAA: The company has non-renewed some of its home and auto insurance policies in Texas, citing rising risks and claim costs.

For further details, you can visit the article Why Is Texas Home Insurance So High? Causes of Increasing Premiums​ (Texas Real Estate Source)​.

Keep reading to learn more about how this insurance crisis is impacting Texas and what you should do if your insurance company cancels your policy.

Key Takeaways: Texas Insurance Crisis

• Texas is among the states experiencing significant changes in the homeowners insurance market.
• Insurance companies are leaving or limiting policies primarily due to increased storm activity and rising construction costs.
• If your home insurance company exits Texas, you may need to seek coverage from a nonstandard insurance provider or the state’s insurer of last resort.

Texas Insurance Crisis: Why Are Home Insurance Companies Leaving Texas?

Climate change and inflation are the primary factors causing insurance providers to leave states like Texas. Insurers are paying out more claims as extreme weather events become more frequent and severe. Specific storms contributing to this trend include:

• EF-2 Tornado in Valley View: This tornado caused significant damage, leading to numerous insurance claims.
• Flooding in Southeast Texas: Repeated flooding events in this region have resulted in extensive property damage and costly insurance payouts.
• The Big Freeze of 2021: This severe winter storm caused widespread power outages, burst pipes, and extensive home damage, leading to a surge in claims.
• Hurricane Frequency: The increasing frequency of hurricanes has caused catastrophic flooding and property damage across Texas, putting immense pressure on insurance providers.
• Recent Derecho Storm in Houston: This powerful storm pummeled Houston with high winds and heavy rain, causing significant damage to homes and infrastructure.
• Frequent Hail Storms: Hail storms are common throughout Texas, leading to frequent and costly claims for roof and property damage.

Additionally, rising construction costs due to inflation mean insurers must spend more per claim, making it harder to remain profitable in high-risk areas.

These factors, combined with regulatory challenges and increasing reinsurance costs, have prompted some insurers to leave the Texas market or significantly reduce their presence.

What are Insurance Non-Renewal Letters?

An insurance non-renewal letter is a formal notification from your insurance company indicating that your current policy will not be renewed once it expires. This letter provides homeowners with critical information regarding the end of their coverage and often includes the reasons for non-renewal.

Common Reasons for Non-Renewal Letters

• High Claim Frequency: If you have filed multiple claims in a short period, the insurer may consider you a high-risk customer.
• Increased Risk Factors: Changes in your property that increase risk, such as adding a trampoline or pool, can lead to non-renewal.
• Pre-Existing Damages: Unresolved issues like roof damage or plumbing problems may prompt an insurer to non-renew your policy.
• Changes in Underwriting Guidelines: Insurers may alter their guidelines, deciding not to renew policies in high-risk areas prone to natural disasters.
• Downsizing the Number of Agents: Some insurers may reduce their workforce or the number of agents they work with, leading to non-renewals as part of their restructuring efforts.

What to Do If You Receive a Non-Renewal Letter

1. Contact Your Insurer: Clarify the reasons for non-renewal and see if there are any steps you can take to rectify the situation.
2. Shop for New Coverage: Start looking for a new insurance provider immediately to ensure you remain covered.
3. Consider the Texas Fair Plan: If you receive multiple non-renewal notices, you may qualify for the Texas Fair Plan, a government-sponsored program providing essential coverage.

Receiving a non-renewal letter can be concerning, but understanding the reasons and knowing your options can help you maintain the necessary protection for your home.

What Should You Do if Your Insurance Company Leaves Texas?

If you hear that your insurance company plans to leave Texas, contact an agent from the company to clarify whether your home insurance will be canceled. Your insurer may only be halting the underwriting of new policies, meaning your existing policy might still be renewed. Figure out why your company is wanting to move on and when shopping for new insurance quotes be sure to relay this information!

Generally, insurance companies must give advance notice of about one to three months before nonrenewing your policy. If you receive a nonrenewal notice, you should have time to shop for a new policy before your current coverage ends.

Texas Underwriting Guidelines Changing

In response to the increasing risks and challenges posed by natural disasters, several home insurance companies in Texas are revising their underwriting guidelines. Here’s what you need to know:

• Farmers Insurance: Farmers is now only accepting policies in high-risk areas for wind and hail if homeowners bundle their home insurance with auto insurance. This means you must have both types of coverage through Farmers to qualify.
• Deductible Changes: Many insurance companies are switching to mandatory deductibles in high-risk areas. For example, there is now a mandatory 2% deductible in these areas. For coastal exposures, some insurers require a mandatory 3% wind/hail deductible.
• Pre-existing Damages: If your home has any pre-existing damages, you are at risk of being denied coverage by a new home insurance carrier. Before applying for a new policy, ensure your home:
  • Is free from other common denial risk exposures, such as significant structural issues or outdated electrical systems.
  • Water Damage: Signs of past or ongoing water damage, such as stains on ceilings or walls, mold, or mildew, can lead to a denial.
  • Foundation Problems: Cracks in the foundation or significant settling issues can indicate structural problems that insurers are wary of covering.
  • Electrical Issues: Outdated or faulty wiring, or evidence of electrical problems like frequent circuit breaker trips, can be a cause for concern.
  • Plumbing Problems: Leaking pipes, outdated plumbing systems, or previous water damage from plumbing issues can be problematic.
  • Structural Damage: Any signs of significant structural damage, such as bowing walls, sagging floors, or large cracks in walls, can lead to coverage denial.
  • Exterior Hazards: Overhanging trees, dry-rot, termite damage, or other exterior issues that could lead to potential claims are often scrutinized.
  • Deferred Maintenance: General neglect or lack of maintenance, such as peeling paint, broken windows, or poor yard upkeep, can be a sign that the property is at higher risk for future claims.
• Roof Condition: Roofs are a critical factor for insurers in Texas. If your roof is older than 15 years, you will have a very difficult time getting approved by a new provider. In this case, you might have to turn to the government-sponsored program called the Texas Fair Plan. This program is designed to provide insurance for those who cannot obtain it through the standard market, but it often comes with higher premiums and less favorable terms.

How To Get Coverage if Your Insurance Carrier Drops You

To find a new homeowners insurance policy, compare quotes from multiple insurance carriers to ensure you’re getting the best deal. Be prepared to share information such as your address, the age of your home, and the number of people living in your household.

For a more streamlined process, consider using Shoptexasinsurance.com’s online insurance marketplace. After filling out a questionnaire, you can be connected with agents who can help you find the best policy for your needs and budget. Click here to compare home insurance quotes from multiple carriers.

If your previous insurer dropped you because your property became riskier to cover, you might have to look for companies that specialize in insuring high-risk properties. If all else fails, Texas has an insurer of last resort that may be able to cover you. However, insurers of last resort tend to charge high premiums for limited coverage, so exhaust all private market options first.

Texas Fair Plan: A Safety Net for Homeowners

For Texas homeowners who have struggled to secure insurance coverage due to multiple denials, the Texas Fair Plan Association (TFPA) offers a crucial safety net. This government-sponsored program is designed to provide essential coverage to those who cannot obtain it through the standard market.

Eligibility for Texas Fair Plan

To qualify for coverage through the Texas Fair Plan, homeowners must have received at least two denial letters from insurance companies within the past 90 days. These denials indicate that the standard market considers the property too risky to insure, often due to factors like previous claims, pre-existing damages, or residing in high-risk areas.

How Texas Fair Plan Works

The Texas Fair Plan provides basic property insurance, covering risks such as fire, windstorm, hail, explosion, vandalism, and theft. However, it’s important to note that while the TFPA can offer necessary coverage, its policies often come with higher premiums and less comprehensive coverage compared to standard market options.

Steps to Apply for Texas Fair Plan

1. Document Denials: Ensure you have the required denial letters from two different insurance companies within the last 90 days.
2. Assess Your Property: Address any pre-existing damages or risk factors that could lead to further insurance challenges.
3. Contact an Agent: Work with an insurance agent who can help you navigate the application process for the Texas Fair Plan.
4. Submit Your Application: Provide all necessary documentation, including the denial letters, to the TFPA.

Texas Fair Plan – Tip To Remember

Coverage is typically much more comprehensive through the private market, which is why we recommend only opting for the Texas Fair Plan if you’ve exhausted all other efforts or are having eligibility issues. Coverage can be more limited when using this program. If you do decide to go with TFPA, we recommend purchasing insurance elsewhere as soon as you are eligible for another product.

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FAQs

Will you be penalized if your insurance company drops you?
You likely won’t have trouble finding a new company to cover you if your current insurer drops you due to changes in their product offerings. However, you could struggle to find a new policy if you were dropped for filing too many claims or if your property became too risky to insure.

Is there a grace period to get home insurance?
You may be eligible for a grace period before your homeowners insurance coverage is canceled if your policy lapses due to missed premium payments. This can vary depending on your state and insurance company.

Are you required to have homeowners insurance?
Homeowners insurance isn’t required by law in Texas, but it is usually required by your lender while you’re paying off your mortgage and may also be required by your homeowners association.