– August Hot News –

Attorney: Hail Claims ‘Cottage Industry’ Bad News for Texas


Texas has the most severe weather in the country - but severity is only part of the story. Texas disasters come from a wide variety of events that are all too frequent (in fact Texas has exposure to nine different types of natural disasters – the most among any state in the country). A study conducted by Kiplinger.com and Verisk Analytics found that unlike other high loss states such as Louisiana and Florida, where hurricanes do the most damage, Texas losses were largely due to common thunderstorms and tornados, with the state enduring major wildfire loss, one tropical storm, four hurricanes, seven winter storms, and 53 severe weather incidents during the 10-year study period.

In terms of profit and loss, homeowners insurance in Texas has been a very difficult business, with insurers incurring loss (not making profit) both in the preceding year and over time. Because of the large loss risk in Texas, it is critical to provide a regulatory structure that encourages companies to do business here.

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Risk Mitigation

Neither insurers nor policymakers can reduce the severity of Texas weather and its devastating impact on Texans’ property. However, in the face of acute risk related to natural hazards, Texas must continue to attract private insurance capital and foster competition. Policymakers can support a variety of measures to incrementally reduce the risk of loss and costs in the homeowners’ insurance market, including:

  • Building codes
  • Enhancement of insurance company competitive risk underwriting and rating programs
  • Contractor registration/regulation
Policymakers should examine those areas where risk in Texas can be incrementally reduced in the public interest. Whether through standards for structures and service providers, or by allowing and enhancing risk mitigation incentives, some measure of loss mitigation is certainly possible, which will translate over time to a more stable marketplace with better rates.

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Claims Reform

Hail is a frequent and expensive problem in Texas, costing the marketplace $10.4 billion in damages from 1999 to 2011 (more than hurricanes, thunderstorms and tornadoes combined). Yet in recent years hail is becoming more expensive not only because of the damage it causes, but also because of the rapidly increasing number of lawsuits the claims are generating. The new rate of dispute is out of proportion with rates in other states and with historical rates in Texas and is indicative of lawsuit abuse. The result is higher costs for all homeowners insurance policyholders in Texas.

A certain amount of dispute in the insurance claims system is inevitable, given the duties of insurers to stay within the terms of their contracts with customers, fact disputes, and human fallibility. Nevertheless, insurers, regulators, and policymakers should continue to examine broadly aberrant instances, and make public policy improvements where possible.

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