Mariam Yousuf

Texas home insurance premiums, already pricey, rose faster than national premiums during the postpandemic period. Rising construction costs, climate risk and reinsurance costs contributed to the upward momentum. Texas homeowners can expect future premiums to continue increasing though at a slower pace.

Home insurance premiums have risen dramatically in the postpandemic years, with the median Texas homeowner paying 60 percent more for home insurance in 2024 compared with 2019, American Community Survey data show. Nationally, the median cost increased 30 percent during the period (Chart 1).

While data sources vary on the exact magnitude of the increases for Texas and the U.S., Texas premiums have notably risen faster than for the entire nation. Additionally, insurance costs as a share of total household costs—the insurance burden—is higher in Texas and grew more during the postpandemic years (Chart 2). This is true for homeowners with and without mortgages.

The insurance burden for Texas homeowners was 14.9 percent for owners without a mortgage and 7.9 percent for those with a mortgage, about a percentage point higher for both categories than in 2019. The burden is higher for owners without a mortgage because mortgage payments are generally the largest cost of owning a home (a larger denominator means the insurance share of costs is smaller).

The U.S. insurance burden increased by 0.5 percentage points for those without a mortgage, and 0.7 percentage points for those with a mortgage during the same period. Meanwhile, Texas homeowners face continuing upward pressure, suggesting further premium increases are likely, though at a slower pace.

Premium rises follow extreme weather, higher building costs

Construction costs and destructive weather increased more than expected from 2019 to 2024, leading to higher insurance company payouts and prompting repricing of premiums. Texas homeowners have historically paid more for insurance than the average U.S. homeowner, partly due to more severe weather in the state, notably hailstorms, prolonged arctic blasts, tornadoes and hurricanes.

More recently, the severity of storms such as the February 2021 statewide freeze and unusually intense straight-line winds (derecho) that hit Houston in May 2024 coincided with pandemic-driven supply chain disruptions and labor shortages. This meant building and replacement costs rose at the same time as the need to rebuild. Moreover, the insurance that insurance companies buy to back-up their claims capacity, reinsurance, also increased in price, further pressuring premiums.

Texas experienced slightly higher commodities inflation from 2023 to January 2026, while the run-up in 2021 was on par with national inflation numbers. Pandemic-related labor shortages pushed construction worker wages higher, with average hourly wages increasing more in Texas than in the U.S.

Texas weather risk more pronounced than U.S. risk

Texas has historically experienced particularly severe weather. The number of annual billion-dollar disasters in Texas has grown 250 percent, from eight storms in 2017 to 20 in 2024. Texas’ share of the total number of U.S. billion-dollar storms increased from 8 percent to 74 percent over the period.

This measure is inflation-adjusted and thus does not simply mirror higher prices. However, it does reflect economic growth in Texas that has led to homes, buildings and other development to both increase in number and value, making it easier for lesser storms to reach billion-dollar status.

Texas’ inflation-adjusted GDP expanded by 34 percent from 2017 to 2024, while the population grew by 10 percent—both less than the rate of growth for the costs of storms. This suggests more inclement weather is likely the primary reason for the pickup in costly storms.

Real estate data firm Cotality (formerly known as CoreLogic) constructs a climate risk score by normalizing the annual average loss rate—a higher risk score implies a higher expected loss due to natural disasters in any given year. The average climate risk score of single-family homes is higher in Texas (61) than in the U.S. (33).

Of all the states, Texas has the seventh-highest average climate risk score. Those higher are other Gulf Coast and tornado-alley states. Academic research has shown that the gap in premiums between low-risk and high-risk areas grew in the postpandemic period.

Repricing of risk in the reinsurance market reflected the widening gap between weather-risk-prone states and those that aren’t. This means homeowners in a high-risk state, such as Texas, paid increasingly more for insurance than their low-risk counterparts, such as Oregon.

Insurance regulation plays important role

While climate risk and construction costs can explain higher trending insurance premiums, state regulators generally determine by how much the actual price changes. In most states, insurance commissioners are responsible for approving rate requests.

State regulation can make price-change approval more difficult. Research has shown that states where it is harder to raise premiums face disproportionately lower increases than are justified by changes in expected payouts.

In high-regulation states, insurance companies are unable to increase premiums to fully cover their risk. Meanwhile, in low-regulation states where insurers can more easily raise rates, they do so even if expected losses have not changed. Over time this creates a distortion between insurance premiums and climate risk.

Residents of states with more regulated pricing, such as California and North Carolina, tend to pay less than what they should be paying based on climate risks and replacement costs. In turn, low-regulation states end up paying more than what risk would suggest. Texas, although it is not the least regulated state, is in the middle of the pack and hence may be subject to some of these distortionary pricing effects.

Coping with unaffordable home insurance

Insurance burden is not a one-to-one comparison to premiums, as burden reflects homeowners’ decisions regarding whether to buy insurance. Because mortgage contracts require home insurance, only owners who have paid off their homes (outright owners) have the option to drop insurance if it becomes too costly.

The share of households with no home insurance has declined despite more outright owners (Chart 3). However, there is evidence that some Texas homeowners dropped insurance in response to higher premiums in 2022.

Since 2022, the number of homes without insurance has declined, which suggests homeowners are aware of the risks of going permanently without coverage and might drop out for a year and repurchase it in the future.

Instead of completely dropping insurance, many homeowners are turning to other strategies such as reducing coverage or even moving out of their homes. Research has shown that when faced with increasing insurance premiums, homeowners will limit coverage, often becoming underinsured.

One option is to switch from replacement cost coverage to actual cash value. For example, in the event of damage to a roof, replacement value will pay to fully replace the roof; actual cash value will pay the often lesser depreciated value of the roof.

Actual cash value coverage is cheaper than replacement value, but some mortgage contracts require replacement coverage for the building structure (except the roof), leaving the actual cash-value option unavailable to certain homeowners. Alternative saving strategies include reduced coverage limits and increased deductible amounts.

Homeowners are also turning to the final option of dealing with unaffordable insurance—sell the home, pay off the mortgage and move. Recent work by a Federal Reserve Bank of Dallas researcher shows that rising insurance premiums increase the likelihood of prepayment of a mortgage due to owner relocation or of mortgage default. Higher insurance premiums can also lead to falling behind on bills and rising delinquency rates on other debt such as credit cards. The rising cost of home insurance is leading to financial stress for some households.

Insurance burden highest in Amarillo, Dallas-Fort Worth

Amarillo and the Dallas-Fort Worth metros have the highest insurance burden among Texas metropolitan areas (Chart 4).

However, El Paso has the largest share of households without homeowners insurance (Chart 5).

To put the data in perspective, the share of outright owners in Amarillo is on par with El Paso, one of the least insurance-burdened metros. But a smaller share of Amarillo homeowners is dropping insurance relative to El Paso, despite the insurance burden being almost double in Amarillo compared with El Paso.

This suggests that homeowners in Amarillo are aware of significant risks to their homes that make insurance worthwhile. Alternatively, they are more risk averse or have a higher ability to pay for insurance than El Paso homeowners.

It’s likely all three factors are contributing. Median household income in Amarillo is $10,000 more than in El Paso, and the climate risk score is 58 points higher in Amarillo (78) than in El Paso (20). In addition to dealing with regular spring-summer storms that generate tornados and hail, Amarillo has faced major disasters, such as 2024 Texas wildfires that burned more than 1 million acres in the Panhandle. Such vivid visuals of climate risk likely induce homeowners to perceive home insurance as worth the cost.

Officials turn their attention to housing affordability

State officials, reacting to affordability concerns, have increasingly considered ways to limit the rising cost of insurance, including in  Texas. Addressing price can have unintended consequences, such as insurance companies pulling out, as occurred in California.

The largest insurer in California, State Farm, announced in 2023 that it would not write any new policies in the state. A year later, in 2024, the company declined to renew some existing policies. The exodus of insurance companies from California forced the state regulator to retool the rules to allow insurance companies to pass-through increased costs from rising climate risk and reinsurance.

Elsewhere, state lawmakers have considered non-price policy measures to lower insurance costs. Florida enacted lawsuit limitations in an effort to attack rising premiums.

Upward price pressures remain for home insurance

Further insurance premium increases seem likely, though at a slowing pace. Weather risk remains elevated. If weather becomes more extreme than anticipated, the additional risk will be incorporated into premiums. Building costs are also expected to rise further. Tariffs have already increased costs for building materials while immigration enforcement has pushed up construction wages.

However, there are signs that price pressures will not be as significant as during the postpandemic period. Reinsurance prices appear to be heading down after a substantial postpandemic increase.

This will help ease insurance companies’ operating costs. The pace of growth for Texas homeowners insurance has already slowed substantially from 18.7 percent in 2024 to 4.3 percent in 2025, according to the Texas Department of Insurance. Since price pressures in 2026 are more similar to 2025 than 2024, it is likely that this slower growth will persist through the rest of this year.

About the authors

Mariam Yousuf
is a business economist in the Research Department of the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.