It's no secret that the marketplace for Texas Home Insurance is a giant mess. We receive phone call after phone call of Texas homeowners who have received a renewal on their homeowners policy in the mail wondering what in the world has happened. It appears to most Texans that the homeowners insurance companies have simply lost their minds. The average rate for a policy has gone up 30%, 60%, or even double over the last year. They are changing the coverage terms on basic homeowners policies by making it harder to claim and making claim payments less.
George called us last week with concerns now that the Spring Hail Season is fully upon us. He knows that a hail claim is most likely between the first of March and Father's Day because of the weather patterns. Besides his policy premium showing a dramatic increase, he realized that his storm deductible had also changed on his home policy. He wanted to understand the difference between a 1% and a 3% hail deductible. George was on the right path with his concern. While many Texas homeowners just shrug and move on, George realized that this could be a big deal for him since he is now retired and living on a fixed income. Let's take a look at how we helped George navigate this precarious situation.
A deductible is an important component of a home insurance policy that policyholders need to understand. Homeowners deductibles are the initial amount policyholders must pay out of pocket before the insurance company starts covering the remaining costs of a covered claim of any type. It is a form of self-insurance, ensuring that homeowners take some financial responsibility for their property damage or loss. Contractors are required by law to collect this amount of money from you before a final claim payout is determined and paid for any insurance claims on your Texas home. George understood this part of the equation, but he was curious about why there were two different deductible amounts on his policy renewal document.
As the frequency of hail damage claims has increased through the years here in Texas, the home insurance companies have had to change how they handle the claim expenses for those types of claims. In the early 2000s, George was able to have a flat $500 deductible limit for any claim. But as the bad actors kept avoiding paying this amount the changes in minimum deductible amounts changed.
The first step was to move to a percentage deductible payment. That percentage that they refer to is not a percentage of your insurance claim payout. Rather it is a percentage of your dwelling coverage amount on your policy. That means if they estimate $300,000 to rebuild your home, 1% of that amount is $3,000. This was a big shift for Texas homeowners when the change happened, but the market quickly adjusted and it helped to keep homeowners insurance premiums lower for a while.
One thing that happened at this point was a move to having different deductible limits for different types of covered claims. The insurance providers decided that the frequency of claims for things other than hail claims was not enough to require the change to the larger, percentage deductibles that they were using claims arising from severe storms. This meant that the water leak could still be $1,000 while your minimum deductible for a hail storm was now the 1% of the dwelling coverage limit on your policy. This became the normal procedure for standard homeowners insurance policies for most of the state of Texas. Because this has been normal for so long, George was perplexed when noticed the new value on his renewal declarations page.
Over the last two years, the home insurance carriers have experienced unprecedented turmoil. The effects of inflation on the broader economy have had a magnified effect on the home insurance market. The response from the insurance carriers has been to raise minimum deductibles for hail coverage on Texas homes. Especially in North Texas and along the Gulf Coast. Where a 1% wind and hail deductible was considered standard, we are seeing standard homeowners policies now with a 2% minimum deductible. The question becomes what does that mean for George?
As a reminder, the amount of a deductible payment due for a covered claim is determined by a calculation of the 2% of the dwelling coverage limit of the insured property. For example, if a homeowner's property is insured for $300,000, their deductible would be $6,000 (2% of $300,000). This means that if the homeowner experiences a covered loss for storm damage they would need to cover the first $6,000 in expenses before their insurance policy starts to provide coverage.
This has been a seismic shift for homeowners who live in the more active hail tracks in Texas. Roofing contractors built entire businesses around not charging homeowners deductible payments when doing a roof replacement. WIth this shift to a 2% minimum storm disaster deductible, the average rates for home policies is beginning to stabilize. But the downside of insurance costs stabilizing is that out of pocket costs for a hail claim is increasing which has been jarring for both homeowners and contractors.
Unless you've been living under a rock over the last three years, you know that the average cost of everything has been increasing at rates that make developing countries blush. Sadly, the cost of homeowners insurance has shot up at an alarming rate compared to everything else. We've documented the four main reasons that annual rates for homeowners insurance policies have skyrocketed, and gladly explained these to George during our conversation.
We've seen the largest increases in average home insurance rates in the Dallas-Ft Worth metroplex due to the amount of hail claims that occur from there up to the Red River. Houston already had high rates and other parts of Texas have not been affected as much. But one thing that has been consistent as the premium costs have escalated is that the major home insurance providers have begun to change how they provide coverage levels to people like George.
The coverage changes have primarily been targeted at the types of coverage specific to roofs on your home. Most major home insurance providers are now focusing on paying as little as possible for claims expenses for homeowners with roofs that have been damaged. They are doing this in two different ways. Accepting a Roof Payment Schedule rather than replacement cost coverage on your roof will reduce the coverage you have every year that the roof is not replaced. The other is forcing the separate deductible for windstorm or hail damage to a higher minimum amount. Given all of the changes, George wanted to know what the average was for standard deductibles for Texas homeowners.
With all of the changes in deductibles and the way that they are handled today, it is hard to pin down an average amount. Since there are two main types of deductibles on standard homeowners policies unless you live in proximity to the Coast, we will focus on the wind/hail deductible and the "all other perils" deductible.
The deductible for wind and hail on Texas homeowners insurance coverage is now always a percentage-based deductible. This means the actual dollar amount of the wind/hail deductible for the policy is completely variable because of the calculation that we described earlier. Most Texas homeowners try to keep this deductible as low as possible and traditionally that has been 1% of the dwelling coverage. Over the course of 2023 that value has gravitated to 2% of the dwelling limit. Since the median home value is roughly $350,000 in the metro areas of Texas, that would make your average deductible in the $7,000 range. If you are at 3% or higher, it is a great idea to speak with an agent at Insurance For Texans today.
When we look at All Other Perils deductible, you typically see two options. Many homeowners still have a flat $1,500 deductible while others have a 1% deductible. The most frequent claim type will be a water event of some sort and these claims can run well above $50,000 if the water is running for a prolonged period of time. You do not want to make small claims as it will have a negative effect on future premium costs. But you also need to take into account the financial risks of having a deductible so large that it prevents a homeowner like George from being able to make appropriate claims when needed.
When George called into our office, he was seeking knowledge and guidance in finding the right home insurance policy terms at the best cost. Our independent insurance agent walked George through our promise to Texas homeowners of finding the right coverage options for them. We start with a set of coverage selections that we know are important to Texas homeowners and then work to customize it to fit their needs. Ultimately, George was comfortable with his choices and enjoyed being able to learn through the process.
If you are looking to partner with people who live and work in the state you call home, you've come to the right place. Insurance For Texans works for Texas homeowners and not some giant insurance company. Our goal is to help you find the right insurance policy terms, with the right insurance provider, and the best price possible. Call us at 469.789.0220 or click the button below to get True Texas Home Insurance today.