Michael was in the process of moving to Texans and buying a house. He had come from the West coast as so many people have done over the last five years. He was excited about how purchasing power he had in our real estate market as he and his wife were now able to afford a much bigger, nicer home up in the McKinney area. The inspection was done and the house was in great shape and he had contacted us to begin working on his options for a homeowners insurance policy. That's when his stomach started to churn.
When Michael first saw the insurance costs in the options that we had available to him, he couldn't believe his eyes. He knew that he wasn't in danger of a wildfire, earthquake, or hurricane in the safety of far north Dallas-Ft Worth. When the annual premium was more than twice what he had paid in another state, he simply couldn't comprehend what was causing it to be so high. His situation is not uncommon in the slightest as the great Texas migration has occurred over the last few years. As the average costs have continued to skyrocket, even long time Texans can't believe what they are seeing.
So what is the deal and what can be done about it? First, we need to understand the market forces on the insurance carriers issuing policies. And then we can talk about the options that Texans have.
Much like everything else in Texas, the home insurance market seems to have a mind of its own. We've always had higher than average premiums in this state because of weather related issues like hail. But Texans have always been able to get great homeowners insurance coverage at a reasonable price through the years. But the chaos inside the insurance industry over the last 24 months has had a profound effect on the cost of homeowners insurance in ways that many of us couldn't have predicted. Michael was now learning this firsthand and not liking it. He needed to know why the homeowners insurance rates were so much higher than his mortgage lender had told him to expect.
Michael knew that he was buying significantly more square footage with this home, so he was able to understand that the cost required to build this home could be higher. But that didn't account for the entire difference in the cost of insurance premiums. He wanted to know what additional factors were impacting the cost of home insurance premiums. He didn't understand how much the location of the home can change the average premium.
What many non-Texans do not consider is the difference in the amount of storm damage that occurs annually in the counties along the Red River in North Texas. These counties along with Dallas-Ft Worth see far more hail damage than Central Texas does. As a result of the freakish hail storms that roll through during both the Spring and Fall seasons, homes in those counties will pay more for the cost of insurance than some other areas.
Once Michael began to wrap his head around this concept, he wanted to know if there were other factors that he could use to his advantage to lower his annual cost of insurance. We explained that insurance companies lean heavily on credit scores to price out homeowners insurance coverage. We also reminded him of the discounts for bundling auto policies, choosing a different roof type that will last longer than traditional asphalt shingles, and selecting to have higher deductibles than the required minimum for wind and hail coverage.
In recent years, there have been significant home insurance rate increases due to the weather factors we had already shared with Michael. But we've also seen the effect of other factors as well. One of these factors is inflation. As inflation drives up the prices of goods and services across the entire economy, insurance providers incur higher costs as claims now cost more to cover. Michael understood that major insurers are not just going to eat these costs. Especially as the frequency of insurance claims has increased on homes all across Texas. As a result, these increased costs have been passed on to policyholders in the form of increased premiums.
It's also important for all Texans to remember that we are in a unique space geographically. We have all of the major natural disasters that homeowners insurance covers. Not only do we have hurricanes, hail, and tornadoes, but we also see wildfires and epic flooding. With the cost of repairs growing, the frequency of property insurance policies paying claims, and insurance companies leaving the Texas marketplace due to losses the average premiums have accelerated significantly.
Michael was now beginning to get a clearer picture of what portion of his monthly mortgage payment was going to be allocated to his homeowners policy. The churn in his stomach was getting worse as he realized that rate hikes probably were not done. But then we had more good news for him since the home insurance companies are also currently changing the coverage terms on their policies.
Home insurance policies are designed to provide financial protection to homeowners in the event of damage to their properties. The idea is that you can repair or rebuild your Texas home without the financial burden of playing for it all out of your own pocket. Once we had confirmed with Michael that he was not buying an outdated roof, we began to talk about two specific aspects of his home insurance policy that were going to become really important to him.
Over the last 12 months the major insurance companies have made some significant changes with respect to how they handle roof claims on home insurance. They are shifting more of the cost of these frequent repairs back to the homeowner. While this may seem unfair to people like Michael, it is being done to directly help keep insurance prices down in the near term.
The first change that has come from homeowners insurance companies has been the Roof Payment Schedule. While this may sound like a systematic way to pay for hail claims on roofs, it is actually a fancy marketing term dreamed up by the insurance companies. The schedule portion of this change to your homeowners insurance is that as your roof gets older, the insurance company is going to pay you smaller and smaller amounts for a hail claim.
When we began to explain this to Michael, he quickly deduced that this is simply an actual cash value provision on roof claims for the home he was about to buy. We confirmed his thoughts and reinforced the concept that the expected depreciation on a roof that was eight to ten years old would not provide a coverage level that would allow him to replace his roof without significant out of pocket costs. This did not sit well with him as hail coverage is must have insurance in Texas.
The other place where Texas property owners can become frustrated with their homeowners insurance coverage is the new minimum wind and hail deductibles. A decade ago, a local insurance agent could find you home insurance policy terms that would allow for a one-percent deductible for wind and hail claims. That meant that your out of pocket costs for a claim before insurance kicks in was going to be one-percent of the rebuild cost of your home. That meant that if your home would cost $400,000 to rebuild from a total loss, your deductible level was $4,000. While that change was met with resistance, it was manageable.
The problem came when roofing contractors continued to keep finding ways to not charge Texas homeowners the deductible as written in the insurance policy. Over time, as dwelling coverage limits continued to grow, the amount of money that homeowners insurance companies were losing on these claims escalated greatly. And as we all know, the insurance companies are not just going to eat these costs.
The response from the insurance companies was to get legislation passed in 2019 to slow this practice. The idea was that making it against the law to waive deductibles would eliminate the practice. It did not slow it down. So now we are regularly seeing deductible levels at two-percent and higher. When an average roof claim is $20,000, waiving $8,000 makes it difficult for the roofer to remain profitable. Property owners like Michael are now seeing the why this was done, and roofers are no longer able to commit fraud.
Ultimately, our new Texas friend Michael wanted to understand what coverage levels he absolutely needed. He wanted to focus on keeping his insurance costs down while also keeping robust coverage on his new Texas homestead when Mother Nature starts lashing out. This is where the independent insurance agents at Insurance For Texans can step in and help. We are the home of True Texas Home Insurance that will allow you to understand what matters in coverage terms while also giving you a wide range of choices to find a reasonable annual homeowners insurance premium.
While you may have been told that there was going to be no math today, we use simple terms to help you understand that saving $500 to $1,000 on your annual home insurance rate may not be the best idea. Let's use our friend Michael's new home. The reconstruction cost of his single story, four bedroom home in McKinney is $550,000. Since it is a single story, the roof size is a little bit bigger and the average claim amount to replace that roof will be roughly $22,000. He knew for sure that he did not want that dreaded roof payment schedule since his roof was five years old. But he was unsure of his deductible.
Our agents had prepared a proposal for coverage that had a two-percent deductible and replacement cost on his roof that had an annual home insurance rate of $4,756. That came with sticker shock. He had a comparison quote from another agent that had a three-percent deductible that had an annual premium of $3,867. He really liked the idea of saving almost $900. But he wanted to make sure that wasn't setting himself up for failure later.
We reminded Michael that many homes in Collin county have a hail claim at least once every three years, while many homeowners make a claim annually. The difference in a two-percent deductible and a three-percent deductible is $5,500. He would have to go six years without a claim to recover the difference in premium being $900. That seemed unlikely in his mind and he opted to choose the policy with greater value to long term financial goals. It was frustrating, but made sense for his family.
If you're worried about the escalating cost of insurance premiums and the decreasing quality insurance coverage seen today, you need to get True Texas Home Insurance. The local, independent insurance agents that work at Insurance For Texans are here to help you understand what you need for quality insurance coverage in your part of the state while also making sure that your annual homeowners insurance premiums aren't going to force you to live in poverty.
Call us at 469.789.0220 or click the button below to get True Texas Home Insurance for your family today. We work for you and not some big insurance company.