Intro To- Rising Homeowners Insurance Premiums.

Homeowners insurance premiums are on the rise in Texas. There are currently over 8 million active homeowners insurance policies in the state. Even though insurance is not legally required in Texas, most mortgage lenders do require homeowners insurance. According to the Texas Department of Insurance, in 2015, the average annual premium was $1,782. But fast forward just 9 years later, and the average annual premium for homeowners insurance was $3,291 in 2024. That's an 85% increase. So why do Texans pay so much for homeowners insurance premiums? Let's look at a few factors. First, Texas is a high-risk state. According to the National Centers for Environmental Information, there was an average of 13.6 natural disasters per year that exceeded $1 billion in damages between 2020 and 2024. However, between 2010 and 2019, that average was just 6.2 a year. This means that the number of natural disasters that exceeded a billion dollars in damages has more than doubled between these two periods. Just like a car accident makes car insurance premiums rise, disasters make homeowners insurance go up. Second, market forces also play a role in increased premiums. Many American-based insurers purchase re-insurance, which is insurance for insurance companies. They'll purchase re-insurance from global companies to access more capital and to diversify catastrophic risk. So if the price of re-insurance increases, insurers will typically raise premium amounts Another market factor is the cost associated with rebuilding a home. If construction costs increase, then the price to rebuild an insured home becomes more costly, and insurers will naturally respond to this increased financial risk by raising premiums. Third, Texas operates under the file-and-use system. This means that insurers can adjust rates without prior approval from the Texas Department of Insurance. And while the Texas Department of Insurance can deny rate changes that are inconsistent with state law, such as ensuring that rate adjustments are not excessive and are not discriminatory, the system still allows insurers to make rate adjustments based on calculated risk. So when the risk is higher, premiums are higher as well. Lastly, the Texas homeowners insurance market is not purely a free market system. Texas has a notable residual insurance market which provides insurance coverage to those unable to attain it in the private market. For example, the Texas Windstorm Insurance Association, also known as TWIA, provides windstorm and hail insurance for those that cannot attain private coverage in the In other words, TWIA provides windstorm insurance for properties that were deemed too risky for private insurers within the designated areas. In short, homeowners insurance premiums are a complex issue that involves risk calculations, state guidelines, and the overall market economy. Thankfully, there are steps Texas can take to alleviate the burden. We as a state should remove the regulatory and political pressures that limit competitive behavior in the homeowners insurance industry. We all know that free markets lead to lower prices and in focusing on deregulation, insurers will have more flexibility to determine premium amounts by calculating their own risk without the constraints caused by regulatory uncertainty. To learn more, visit TexasPolicy.com. We'll see you next time.