Climate risks leave home insurers cautious about doing business in Texas

A growing number of extreme weather events in Texas has made insurers in Dallas-Fort Worth more cautious about providing coverage to homes in the region.

Insurers have started pulling out of the high-risk states of Florida and California due to climate risks. While there are no clear signs that insurers will pull out of Texas entirely, homeowners and buyers are facing challenges in getting coverage that real estate industry veterans say are unusual compared with previous years.

This comes as 15 weather or climate disaster events with losses of more than $1 billion have impacted Texas in 2023, the most since 1980, according to the National Oceanic and Atmospheric Administration National Centers for Environmental Information. That includes windstorms, hailstorms, tornadoes and the drought and heat wave from April to September.

Researchers from the Environmental Defense Fund and Texas A&M University recently found that Texas ranked No. 8 in the U.S. for overall climate vulnerability.

Multiple weather catastrophe risks combined with rising costs have created a challenging market environment for insurers, said Richard Johnson, director of communications and public affairs for the Insurance Council of Texas.

Insurers are looking for ways to mitigate risk exposure while still providing policy and coverage options in Texas, he said. That may include reviewing underwriting guidelines, coverages offered and deductible amounts.

But Johnson has yet to see any company choose to stop writing entire lines of insurance as some are in other states.

“While we have not seen any insurers leave Texas, they are facing a variety of economic pressures and challenges and will likely be looking at different approaches to remain competitive in the Texas market,” Johnson said.

Growing concern

Homebuyers are feeling the pinch of stricter insurers.

John Burns Research and Consulting, a national analyst tracking homebuilders, surveyed builders on buyer concerns regarding access to and costs of homeowners insurance.

Builders reported the majority, or 84%, of Texas new-home buyers were not concerned about insurance, but 16% were somewhat concerned.

Florida and California had a far greater share of buyers worried about getting or being able to afford insurance, with some “very concerned,” but Texas was the next biggest concentration of insurance fears, the survey indicated.

“In my long history working in the new-home space, this is the first time that insurance concerns are becoming a serious issue for homeowners and builders,” said Jody Kahn, senior vice president of research surveys for John Burns.

Still, only 4% of Texas builders reported insurance issues even somewhat affecting their sales.

“While homeowners insurance and commercial property insurance is becoming a problem in California, Florida and the Southeast, it has so far not had a material impact on home sales in the D-FW market, which could be a tailwind for home sales moving forward relative to other locations,” said Bryan Lawrence, a vice president with John Burns in Dallas-Fort Worth.

Evaluating risk

Cypress Property & Casualty Insurance Co., a Jacksonville-based insurer with offices in Florida and Texas, said it limits the number of homes it insures and the total amount of coverage in particular areas based on the amount of reinsurance it has purchased. Reinsurance companies take on some, if not all, of another insurer’s risk.

“Finding reinsurance companies willing to participate in funding the large homebuilding growth that is occurring in North Texas becomes more difficult as the losses increase and the price that is charged by the reinsurers and insurance companies is insufficient to cover these losses,” said L.G. Lugo of Cypress Property & Casualty Insurance Co.

When asked whether insurance giant Nationwide has stopped accepting new homeowners insurance business in Texas, company spokesperson Kevin Kemper said the company does not share actions in specific states. But he pointed to a June 12 update on its website saying the company’s property and casualty division is now requiring pre-quote documentation in some states and is also taking actions to balance risk in its commercial business.

Jaelan Austin, an insurance broker in Fort Worth with Goosehead Insurance, said most carriers are no longer accepting new homeowners insurance business in North Texas, at least temporarily, and that some are choosing not to renew existing policies.

He said many insurance companies will only accept new policies if bundled with auto insurance, but many customers may not want to cancel their auto insurance in the middle of their term to move to a new carrier to get home insurance.

The company has relationships with dozens of carriers, including non-mainstream carriers, that it taps to find coverage for struggling homeowners.

“It’s been really unfortunate for a lot of clients,” Austin said. “We’ve been pushing to find new ways to help our clients out and make sure that they’re able to get their homeowners insurance.”

Shopping around

Racheal Potter, who leads the housed real estate and relocation team of 14 real estate agents at Keller Williams Dallas Midtown, said one of her agents’ clients in McKinney had an insurance company decide not to insure a home because trees were hanging over the roof.

She recalls another situation when an insurance company wouldn’t cover a home because the sellers didn’t have documentation on how old or new the roof was.

“I’ve been doing this about almost nine years now, and I have seen insurance companies insure roofs that you and I wouldn’t walk on,” Potter said. “I haven’t heard this bubbling up until like the last six or eight months.”

Potter said bigger insurance companies have been very particular about what they’re insuring. She has been sending clients to brokers like Goosehead to help them find other insurers.

Todd Luong, a real estate agent in Frisco for Re/Max DFW Associates, said one of his clients buying a roughly $800,000 home in Richardson about a month ago got a quote for about $4,500 a year.

Customers can likely find a cheaper rate through brokers or smaller insurance companies, he said, but some prefer to stick with names they know or companies they’re already doing business with for auto insurance.

“Some of my clients don’t feel comfortable getting coverage through some really small insurance company that they’ve never heard of before,” Luong said.

Johnson said rates and premiums have increased over the past two years following rebates during the pandemic, the 2021 winter storm and inflationary pressures.

Texas regulators approved 36 double-digit-percentage homeowners insurance rate increases in the third quarter, according to S&P Global Market Intelligence. The most significant rate change was a 16.8% increase by Travelers Personal Insurance Co. totaling $130.7 million in premiums and affecting 370,000 policyholders, S&P found. The state also signed off on a 15.1% increase for Texas Farmers Insurance Co.

Elevated interest rates and home prices have already made it impossible for some families to qualify for mortgage loans. Higher insurance premiums could also price people out of homeownership, especially low- and median-income earners.

“The premiums, if they already have a policy, are almost doubling,” said Eric Juarez, a real estate agent in Fort Worth with Great Western Realty and vice president of the National Association of Hispanic Real Estate Professionals’ Dallas chapter. “So many people are needing to shop around for insurance, and people who are getting into new homes are getting high premiums or struggling to get a good carrier.”