Why Texas Could Soon Have An Insurance Crisis On Its Hands

Texas homeowners could soon find themselves stuck between a rock and a hard place because property values rise alongside the risk of powerful hurricanes. On the one hand, property appreciation is a benefit, but the more a property is worth, the more it costs to insure. This explains why Lending Tree's statistics show Texas recorded a nearly 55% increase in homeowner insurance premiums between 2019 and 2024.

Cumulatively, Texas' home insurance premium increases qualify as the fifth largest in the country. That means homeowners insurance premiums in Texas are growing faster than in 90% of the other 45 states. Although inflation certainly accounts for some of the increase, Lending Tree's study also found the average premium increase nationwide for 2019-2024 was 37.8%. Such a large disparity can only mean more factors are at work in Texas than just inflation.

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Lending Tree's analysts believe that rising property values are a big driver of the premium increases, and the numbers certainly add credibility to their analysis. According to Redfin, the median home price in Texas is $352,400, just shy of the all-time high of $372,000 in May of 2022. The median home price has risen since January and is also 1.4% higher than in April 2023.

It's an inescapable reality that the more an asset is worth, the more it costs to insure. However, Texas homeowners pay an average of $4,647/year in homeowners' premiums, which Lending Tree says is 87.5% higher than the national average of $2,478. It's also the fourth-highest annual average homeowners' premium out of all 50 states. Ironically, Texas' northern neighbor Oklahoma pays an average premium of $5,478/year.

The fact that Texas homeowners pay some of the highest premiums in the country has less to do with property values than it does with the fact that the Lone Star State is at risk of so many natural disasters. The most obvious risk comes from hurricanes, which can hit anywhere along Texas' Gulf Coast. However, hurricanes pose a particularly grave threat to the real estate in Houston's metropolitan area.

That's a complicated situation because Houston is also one of the epicenters of Texas' population boom. Much of the state's new home construction is concentrated in and around Houston. Making matters worse, the Houston area is prone to severe flooding even if a major hurricane doesn't strike. Last month, a violent series of storms called a "Derecho" slammed into Houston.

In addition to causing several deaths and severe flooding, the Derecho knocked out power for hundreds of thousands of Houstonians during a sweltering heat wave. The property damage was in the tens of millions of dollars, which is peanuts compared to the cost of covering major Hurricanes like Ike and Harvey. With Texas' current median home values, the cost associated with hurricane-related claims in a city like Houston can easily exceed $1 billion.

Lending Tree's home insurance expert Rob Bhatt, who is also a licensed insurance agent, summed up the situation in a recent Newsweek interview, saying "When their costs of paying claims go up, they turn around and raise our rates. This affects prices for just about everyone, including people who haven’t been directly impacted by a natural disaster, or at least not yet."

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That means there is plenty of room for Texas' insurance rates to mimic the meteoric rise taking place in Florida, which currently has the highest premiums in the country. The frightening reality is that the only reason Texas' insurance rates haven't spiked even higher is that Texas has not (recently) been hit with a rapid succession of hurricanes in a short period like Florida, which had multiple named storms make landfall between 2017 and 2023.

The similarities between the two states are striking. They are in the Sunbelt, have long coastlines along the Gulf of Mexico, and have several major population centers with abundant affordable real estate. Add zero state income tax to the mix and you will end up with just about the perfect incentive for mass migration, which both Florida and Texas are currently experiencing.

This population boom is happening while surface temperatures in the Gulf of Mexico continue to set all-time highs. Most scientists agree that those high water temperatures are making hurricanes bigger and stronger. If that trend continues, inevitably, major hurricanes will eventually hit Texas.

Once that happens, the resulting insurance premium increases could make Texas homeowners' insurance policies a virtual "shadow tax." For all these reasons, Lone Star state homeowners may want to prepare themselves for a bumpy ride when it comes to insuring their properties. It's no longer a question of whether the premiums will go up. It's now just a question of how much. Texas real estate investors should take heed and proceed with caution.

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