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Texas’ Perfect Storm May Result In Largest Insured Loss In Texas History

4/8/21

By: Ken Coronel

Texas residents are still recovering from the extreme winter storm which left the state reeling from days of widespread blackouts, water shortages, millions left in the dark, and business closures. From the standpoint of the carriers writing in the state, the second-largest property insurance market among U.S. states, this was the “perfect storm”, with its frigid temperatures, duration of the cold, snow and freezing rain, and wind caused power outages, all combined with the frailty of the Texas power grid. And then there was the size of the event. You would not have a hurricane hit all of Texas.

Thousands of claims have already been filed in Texas. The vast majority are for damage from burst pipes. State Farm, the largest homeowner insurer in Texas, reports that it received a total of 75 claims for bust pipes in Texas in all of 2020. So far this year, it has received thousands of claims for bust pipes. The majority of the other claims are for damages caused by collapsed roofs and business interruption. The resolution of these claims will undoubtedly be rendered more costly and time consuming due to the pandemic.

The Insurance Council of Texas predicts busted pipes and water damage to homes and business across the state could result in hundreds of thousands of insurance claims. Indeed, the ICT stated that the ice storm could be the costliest storm Texas has experienced. A.M Best repeated that warning and predicted that insurers could suffer record first-quarter catastrophe losses.

Insurance organizations are projecting that claims could exceed 20 billion dollars, in aggregate. Texas has 4.9 million homeowner’s policies with over $10 billion in annual written premiums, according to the Texas Insurance Department. The widespread scale and claims volume of the storm could drive ultimate insured losses to a range of $10 billion to $20 billion. As a point of reference, U.S. industry first-quarter catastrophe losses have averaged $4.6 billion over the prior 10 years, with a high of $7.6 billion in 2017.

In light of the large size of the storm, a large number of individual carriers are exposed to losses. Insured losses in Texas will be heavily weighted toward personal lines coverage from homeowner’s losses and, to a lesser extent, automobile claims relative to commercial lines coverage. The ice will be a distant memory before we find out if this weather event results in the largest insured loss in Texas’ history.

For more information, please contact Ken Coronel at [email protected].