Climate change has sent Texas homeowner insurance rates skyrocketing

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Insurance companies across Texas have dramatically increased home insurance rates this year, state filings show, as climate change spooks executives and inflation pushes up costs to rebuild after natural disasters.

Texas is prone to hurricanes and flooding, both of which are made more severe by climate change. Now insurance companies are becoming increasingly concerned about more powerful thunderstorms that are wrecking homes with flooding, hail and strong winds, analysts and experts said.

And as both the impacts of climate change and inflation have worsened over the last couple of years, insurers have “less of an appetite” for taking chances in catastrophe-prone states, said Tim Zawacki, an insurance industry principal research analyst for S&P Global.

The impacts are being felt on homeowner’s pocketbooks: Insurance rates in Texas have skyrocketed 22% since the beginning of this year according to an S&P Global analysis of Texas Department of Insurance data.

That’s twice the average national increase of 11% over the same time period.

“The insurance industry is the canary in the coal mine for the climate crisis we’re facing,” said Steven Rothstein, the managing director of the Ceres Accelerator for Sustainable Capital Markets, a nonprofit organization that advocates for sustainable investment practices in the finance industry.

Rothstein said he thinks the single biggest cause for increasing insurance costs in Texas is the impacts of climate change.

“The risks on [insurance companies’] balance sheets are very significant and growing,” Rothstein said. “This is happening across the country, and across Texas. It is not just coastal Texas.”

There have already been 16 disasters in Texas this year that cost $1 billion or more — a new state high for billion-dollar disasters in a single year, according to National Oceanic and Atmospheric Administration inflation-adjusted data. And that’s during a year when no hurricanes struck the Texas coast: Almost all of those weather disasters were severe storms.

Over the last two years, Zawacki said, property losses from convective storms, which includes thunderstorms, tornadoes, hail, and heavy rains, have dramatically increased. While climate change may be a political issue, Zawacki said, “I don’t think companies and their shareholders are willing to take the bet that it’s a transitory situation.”

Climate scientists have observed that thunderstorms with heavy rains are now more frequent in the U.S. and longer lasting than they used to be, and the storm conditions that produce large hail are more common, according to the Fifth National Climate Assessment.

Texas emits more greenhouse gas emissions than any other state, according to the Environmental Protection Agency. It accounts for 14% of the nation’s climate-warming emissions, and produces more than twice the total emissions of California, the next largest greenhouse gas emitter. Texas is also the nation’s largest oil and gas producing state, accounting for more than 40% of the nation’s oil production.

Rate filings, which companies are required to submit to state regulators for review, indicate that insurers began to dramatically increase the cost of Texas homeowners insurance in 2022. That year, rates jumped an average of 11% from 2021, according to S&P’s analysis. In the preceding four years, increases ranged between 2% and 5%.

The rates are one part of how insurance companies calculate customers’ premiums.

Texas Department of Insurance data shows that the average Texas homeowner’s premium was $2,124 in 2021, the most recent year for which data is available. While the state’s data doesn’t yet show the big increases in 2022 and 2023, customers in Texas told the Tribune that their homeowner premiums have jumped.

For Bay City resident Eva Malina, 75, and her husband, both of whom are retired university professors, homeowner insurance premiums shot up 61% between 2020 and 2022. Her next bill is due in December.

After already absorbing an almost $700 increase in their homeowner premium, Malina decided to add solar panels to her home to cut down on utility bills.

She also decided to increase the deductible on the house “because the premiums were so high.”

Texas premiums are already among the most expensive in the nation. But many areas of the state are likely underpriced relative to their climate risk, according to a model created by the First Street Foundation, a nonprofit group of academics and experts that quantifies climate risks.

First Street calculated that more than half of Texas properties are paying lower insurance rates than their risk level would indicate, or about 6.9 million of 12.4 million properties assessed by the model.

Nationwide, insurance costs are increasing as inflation has pushed up construction costs and as “reinsurance” expenses have risen globally. Reinsurance — which is essentially insurance for insurance companies — has gotten dramatically more expensive in recent years as companies that issue it attempt to reduce exposure to storms made worse by climate change.

In Texas, the impact is particularly clear on the Texas Windstorm Insurance Association, or TWIA, the insurer of last resort for homes and businesses on the Texas Gulf Coast. TWIA paid almost $206 million this year for reinsurance, a 63% increase from 2022.

TWIA was created by the Texas Legislature in 1971 to provide wind and hail insurance to coastal homeowners and businesses that could not obtain it in the private market due to their risky location on the coast. It largely operates like any other insurance company, except that it can assess a tax on other insurance companies in the state to raise money if its reserves aren’t enough to cover losses from hurricanes or other major disasters.

After Hurricane Harvey blasted the Texas coast in 2017, for example, TWIA withdrew more than $740 million from its catastrophe reserve fund, which is financed by premiums, leaving the fund empty. It then had to assess $372 million on Texas insurance companies — which can then pass on that cost to their Texas customers — to pay Harvey-related claims between 2018 and 2020.

TWIA’s premiums have steadily climbed in recent years, but Gulf Coast customers are almost certainly dramatically underpaying compared to their risk level. The average TWIA residential premium for customers living in high-risk coastal areas was $2,091 in September. That’s slightly less than the statewide average from two years ago — before the big rate hikes.

According to an actuarial analysis, TWIA rates would have to increase a whopping 20% on residential properties and 22% on commercial properties in order for its reserves to be financially sound.

But big rate increases on homeowners insurance premiums are politically difficult to swallow: In 2019, TWIA proposed a 10% rate increase, but withdrew it after the governor blocked the Texas Department of Insurance from considering the increase for at least six months. TWIA ultimately implemented a 5% rate increase in 2022, and did not propose an increase for this year.

Aaron Taylor, a spokesperson for TWIA, told the Tribune that the board had implemented a strategy to gradually increase rates over time, about 5% each year, but that Hurricane Harvey had disrupted that plan.

Matthew Eby, founder and chief executive officer of First Street Foundation, said earlier this year that an over-reliance on insurers of last resort is a “big flashing sign” that the insurance market is not keeping up with climate change.

“We are rapidly moving to a place where the cost of insurance will make the most at-risk homes effectively uninsurable,” he said.

As climate change continues to worsen, experts said, that raises thorny questions about coastal development.

“You run into the question of whether we should be, as a society, encouraging development — through affordable and widely available insurance — in areas that are most likely to be negatively impacted by climate change,” said Zawacki.