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ICT Presents the Facts on the Climate’s Impact on Homeowner’s Insurance


December 11, 2023

Clarifications needed on TWIA funding and homeowners insurance rates in Texas 

In a recent article published Nov. 30, 2023, in the Texas Tribune, Climate change, costly disasters sent Texas homeowner insurance rates skyrocketing this year, we believe there are several inaccuracies and omissions regarding the discussion on the rising homeowner insurance rates in Texas. A closer examination reveals a more nuanced picture, with a range of factors contributing to the challenges faced by insurers specific to Texas. 

Climate Change Amidst Multiple Factors 

While acknowledging climate change as a contributing factor, the article overlooked or at least minimized other significant elements driving insurance costs, such as increased replacement costs, (including personal contents, roofing, labor etc.) and especially the massive increase in cost to rebuild a home in today’s housing market. These factors collectively shape the landscape for insurers in the state.  Over the years, Texas has faced various weather risks: hurricanes, tornadoes, hail, floods, and winter storms. These factors have historically kept Texas homeowner insurance amongst the top five in the nation, regardless of any discussion on change in climate conditions. 

A critical omission in the article is the failure to mention the substantial increase in losses in recent years and how companies may be adjusting in future underwriting. Meaning, insurance companies are paying more in claims than they are collecting in premiums. Understanding this context is essential for a comprehensive assessment of the challenges facing the insurance industry in Texas. 

Weather Related Losses and Texas Rates 

Contrary to the implication that rising rates are a recent phenomenon, Texas has historically had among the highest insurance rates in the nation. This is attributable to a variety of losses that have long been a characteristic of the state. We have long experienced hurricanes, tornadoes, floods, and catastrophic hail events for decades including severe winter weather and deep freezes. These phenomena are nothing new for Texans. 

First Street's Statement and Insurers of Last Resort 

The assertion by First Street that overall rates are inadequate is questionable as companies do their best to adequately price for the risks they face in Texas. Companies file rates with the Texas Department of Insurance, which must be supported by actuarial analysis and data. Thankfully, Texas, unlike some other states, has a competitive insurance market, and companies compete on price and services, among other factors.   

As for rate inadequacy in an insurer of last resort, like the Texas Windstorm Insurance Association (TWIA), it is documented by TWIA’s actuarial analysis that their rates are indeed far below what is needed for actuarial soundness. But TWIA’s rate decisions are made by their board unlike a private insurance company which cannot remain financially viable with inadequate rates for the risks they insure.   

Clarifying TWIA’s Funding Mechanism 

The article failed to highlight a crucial aspect of the TWIA loss funding model. Unlike traditional insurers, TWIA covers losses by issuing bonds and collecting assessments from private insurers. TWIA takes on debt to pay for their losses, which is a significant factor that contributes to the financial challenges faced. 

Additionally, there was a misunderstanding about how TWIA collects funds from insurers. The article uses the phrase “taxes,” but TWIA does not have taxing authority. It should be clarified that TWIA relies on assessments, not taxes, which are capped at $1 billion per catastrophe year. Depending upon how insurers handle these assessments, these assessments are passed along to Texas policyholders. The private insurance market pays a sizable portion of losses experienced by TWIA if there is a catastrophic event that impacts the Texas coast. 

Consumer Options and Rate Shopping 

Our members want to empower consumers to make informed choices, and it is crucial to emphasize that they have the option to shop around for lower rates. With hundreds of insurance companies available for homeowners' insurance in Texas, consumers can explore alternatives when faced with rate increases. 

To conclude, a nuanced understanding of the complex factors influencing homeowner insurance rates in Texas is essential. Accurate and comprehensive reporting is vital to foster an informed public discussion on the challenges faced by insurers and homeowners alike. 

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