Homeowners Insurance in Texas Compared to Other States
Historically, homeowners insurance in Texas has been higher than most other states due to the unique array of weather-related risks to which the state is vulnerable -- specifically, hailstorms and tornados in the central, western and northern areas, and hurricanes on the coast. 5 Wind-related weather events are the main factors in determining whether the homeowners insurance industry has a profitable year in Texas (See Exhibit 3 and Exhibit 4). 6
The only comparison of insurance premiums by state is reported annually by the National Association of Insurance Commissioners (NAIC). The NAIC's Homeowners Report contains a summary of market distribution, average cost by policy form, and information for each state regarding the number of homeowners policies written, amount of insurance and average premiums.
See Exhibit 8 for a recent history of average homeowners premiums in Texas compared to a select group of comparable states, as reported in the NAIC reports.
See Exhibit 9 for a comparison of recent percentage changes in average homeowners premium for selected states.
It is important to note that these comparisons can be quite misleading for several reasons, which are detailed by the NAIC in a data limitations statement at the beginning of each year's sample report. A fundamental problem with comparing homeowners insurance rates across states is that there are a wide variety of weather hazards, economic conditions, degrees of development/urbanization, and rebuilding costs from state to state. Beyond that, however, there are two important caveats with important implications for comparisons to Texas data:
- Texas policy forms are different than the single form primarily used in the other states, and for this reason NAIC states that Texas data is not comparable to other states; 7 and
- Texas data includes the coastal wind risk written by its insurer of last resort (Texas Windstorm Insurance Association) while Florida data does not include its coastal wind risk (written by Citizens Property Insurance Corporation, its insurer of last resort). For this reason NAIC states that Florida's premium cost is significantly under-reported. 8
The bottom line: Texas homeowners insurance rates will always be among the highest in the country due to the physical and geographic nature of its severe weather risks. Direct cost comparisons to other states using the NAIC data, however, are not possible due to the "apples to oranges" problems identified in the disclaimer to the report. The NAIC homeowners report is an account of some -- but not all -- of the homeowners insurance market because not all states' premiums are reported.
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5 According to ISO's Property Claim Services, Texas consistently ranks among the highest states with the largest property losses. A useful point of comparison is Auto insurance, a line in which weather does not play a large role in claim frequency or severity, but as a property and casualty line is subject to the same regulatory structure in Texas as Homeowners insurance. According to recent state-by-state comparisons from NAIC, Texas ranks near the middle in average auto liability premiums relative to other states ( see Exhibit 11).
6 Breaking out paid losses over time by cause of loss shows that the most variable category by far is weather-related (windstorm, hurricane, hail). There is a notable exception during 2001-2003 for water damage, reflecting the Texas mold crisis. Other homeowners loss categories are largely stable from year to year (e.g., fire, theft, vandalism, liability). ( See Exhibit 5).
7 Not only is the Texas HO-B different than the HO-3 written almost exclusively in the other states, but the Texas HO-B only represents about a third of the Texas homeowners market. The remainder of the Texas market is covered by the HO-A and HO-A+ forms. While the NAIC report includes data for all policy forms, it only reports HO-3 data in its yearly press release, and that is the data reported in the media. Data in Exhibits 8 and 9 represent an average of all policy forms combined to more accurately reflect true average premium costs across states.
8 In a similar vein, Louisiana does not report premium from Louisiana citizens, and the California average premium does not include premium for earthquake coverage written through the California Earthquake Authority. This results in the average premiums for Louisiana and California being understated.