Download the USA Weather Chart – showing Texas has the most severe weather in the country – with exposure to nine different types of natural disasters – the most among any state in the country.
Texas has the most severe weather in the country. In fact, Texas has exposure to nine different types of natural disasters – the most among any state in the country. Texas insurers continue to prepare for unpredictable weather losses. During “good weather” years with fewer claims, insurers reserve consumer premiums to prepare for future catastrophes. What some see as “profits” can be quickly wiped out, and the state’s entire insurance system destabilized.
Homeowners insurance is a difficult business throughout the United States. In the past few years, headlines have been filled with a long string of disasters that have resulted in billions of dollars in paid insurance claims. Unfortunately, Texas has been the location of a large number of these catastrophic events.
However, although Texas has been subject to some of the biggest catastrophes to hit the United States in recent years, severity is only part of the story. Texas disasters come from a wide variety of events with a sad frequency. In a recent study conducted jointly by Kiplinger.com and Verisk Analytics, the authors observed that, unlike other high loss states such as Louisiana and Florida, 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 ten year study period.
Insurance costs are driven not only by weather, but also by the intersection of damaging events and insured value. Unfortunately, much of the severe weather risk in Texas is located over high population and construction concentrations. From the Panhandle to the Dallas-Fort Worth Metroplex, down the I-35 corridor or down! -45 to Houston, Galveston, and the coastal bend, Texas is built largely under severe weather risk.
The occurrence of frequent weather disasters over population centers creates a high level of both claims frequency and severity in our state. To put the values into perspective, Illinois, the tenth state on Kiplinger’s top ten list of disaster loss states, had weather disaster losses of $4.9 billion over the past decade. Texas suffered in excess of $1 billion of loss from a single afternoon hailstorm on June 13, 2012, more than 20% of Illinois’ ten-year total. And this storm is only the latest in a series of major weather losses suffered from McAllen to our northern borders that had already cost hundreds of millions of dollars, with the major part of wildfire, hurricane, and winter storm season still ahead of us.
The result of Texas’ weather losses over the long term, in addition to frequent public safety concerns and disruptions for many Texans, is high long-term claims costs and high rates relative to most other states. Though most national premium comparisons, including the annual comparison published by the National Association of Insurance Commissioners (“NAIC”), are somewhat flawed by their own admission, there is no doubt that Texas homeowners’ insurance is among the most expensive in the nation, and substantially higher than the national average.
We should note that the NAIC comparison most often cited to compare Texas to other states compares premium, not rate. Premium is the cost of policies without reference to the value insured. Rate is the cost of insurance for a specified amount of coverage, most often expressed in cost per $1000 of coverage. While premium has remained generally stable over the last decade, rate has actually declined, due to the significant increase in the average amount insured in Texas policies.