Storm Warning

Storm Warning Winter Blast a Harsh Reminder of Need for Homeowner’s Insurance

A recent Texas Real Estate Research Center study found low-income households were less likely to have homeowner’s insurance than higher-income households, both in metropolitan and nonmetropolitan areas. This is also true among homeowners who do not have a mortgage. By Luis B.

Torres and Joshua Roberson

In February 2021, Winter Storm Uri caused temperatures to fall overnight into single digits and lower across much of Texas, resulting in an estimated $130 billion in damage and economic losses and more than 150 deaths. If the estimates are correct, Uri is one of the costliest weather disasters in the state’s recent history.

It also accentuated the importance of having homeowner’s insurance. Many homes were in need of repairs from damage caused by the snow and ice. Households with homeowner’s insurance avoided a major financial hit. Those without insurance, on the other hand, were faced with paying the full repair bill out of pocket.

Identifying the location and characteristics of uninsured homeowners would enable the state to better allocate resources for home repairs following a natural disaster such

A Half Century of Serving Texas’ Real Estate Industry

This year, the Texas Real Estate Research Center celebrates its golden jubilee. While much has changed since 1971, one thing hasn’t: Our commitment to helping Texans make the best real estate decisions. Here’s a brief history of our first 50 years.

Figure 1. Uninsured Single-Family Homeowners by Metro Status, 2019

Not in metro

Metro status indeterminable (mixed) In metro (central/principal city) In metro (central/principal city), status indeterminable (mixed) In metro (not in central/principal city) 0% 5% 10% 15% 20% 25% Percent Uninsured

Sources: IPUMS USA, University of Minnesota, www.ipums.org, and Texas Real Estate Research Center at Texas A&M University

Figure 2. Average Household Income of Single-Family Homeowners by Metro Status, 2019

In metro (not in central/principal city) In metro (central/principal city), status indeterminable (mixed) In metro (central/principal city) Metro status indeterminable (mixed)

as a freeze. To that end, the Texas Real Estate Research Center used the U.S. Census Bureau’s 2019 Integrated Public Use Microdata Series (IPUMS) to estimate the number of uninsured households in Texas. The sample data sets include single-family attached and detached homes. Households that self-reported no property insurance payment were considered uninsured.

Comparison by Metro

The Center found nonmetro homeowners were more likely to be uninsured than metro homeowners (Figure 1). Approximately 26.6 percent of nonmetro homeowners reported as uninsured compared with 11 percent in metropolitan areas in a central/principal city (Austin, Dallas-Fort Worth, Houston, and San Antonio) and 10.2 percent in metropolitan areas not in a central/principal city (rest of Texas’ Metropolitan Statistical Areas).

In addition, the Center’s analysis incorporated average household income by metro status and found a relationship between being uninsured, having a lower household income, and living in a nonmetro area. Metropolitan areas had a higher average household income than nonmetropolitan areas (Figure 2), registering above $100,000 for both in and not in a central/ principal city compared with $71,326 for a nonmetro household.

Not in metro

$0 $15 $30 $45 $60 $75 $90 $105 Thousands of Dollars

Sources: IPUMS USA, University of Minnesota, www.ipums.org, and Texas Real Estate Research Center at Texas A&M University

1971 1972

Figure 3. Uninsured Single-Family Homeowners by Metro Area, 2019

McAllen-Edinburg-Mission Brownsville-Harlingen Laredo Beaumont-Port Arthur Odessa Corpus Christi San Angelo Wichita Falls Midland Lubbock El Paso Waco Amarillo San Antonio-New Braunfels Houston-The Woodlands-Sugar Land Tyler College Station-Bryan Dallas-Fort Worth-Arlington Austin-Round Rock 0% 5% 10% 15% 20% 25% 30% 35% Percent Uninsured

Sources: IPUMS USA, University of Minnesota, www.ipums.org, and Texas Real Estate Research Center at Texas A&M University

Figure 4. Average Household Income of Single-Family Homeowners by Metro Area, 2019

Metropolitan areas in the Rio Grande Valley and along the Texas coast record the highest percentages of uninsured households (Figure 3). McAllen leads at around 37.5 percent, with almost two out of five households uninsured. Brownsville follows close behind with 34.9 percent. Despite being vulnerable to hurricane damage for decades, Beaumont and Corpus Christi register relatively high levels of uninsured homes—21.5 and 19.8 percent, respectively. In other words, one out of five homeowner households there is uninsured.

In contrast, the smallest percentages of uninsured households are in Austin and Dallas-Fort Worth with 6.1 and 7.4 percent, respectively. As before, the study found a relationship between lower income levels and uninsured households in the metropolitan areas (Figure 4).

McAllen-Edinburg-Mission Brownsville-Harlingen Laredo Beaumont-Port Arthur Odessa Corpus Christi San Angelo Wichita Falls Midland Lubbock El Paso Waco Amarillo San Antonio-New Braunfels Houston-The Woodlands-Sugar Land Tyler College Station-Bryan Dallas-Fort Worth-Arlington Austin-Round Rock

Mortgage Status and Insurance Coverage

Mortgage status plays an important role in determining the likelihood of having property insurance given that mortgage contracts require a homeowner’s insurance policy. The mortgage lender has a potential financial interest in the home, which is the motive for requiring insurance. Only 4.1 percent of homeowner $0 $25 $50 $75 $100 $125 households with a mortgage are Thousands of Dollars uninsured compared with 26 per-Sources: IPUMS USA, University of Minnesota, www.ipums.org, and Texas Real Estate Research Center at Texas A&M University cent who own their home free and clear of debt (Figure 5). It’s possible Figure 5. Uninsured Single-Family Homeowners by Mortgage Status, 2019 that mortgagors without insurance could have unconventional or mortgage-like debt structures rather than more ubiquitous conventional Under contract to purchase mortgages. Once again, a relationship is found between having

Morgage/deed of trust lower average household incomes and being uninsured. or similar debt Those who own their home free and clear of debt and are Owned free and clear uninsured have an income of around $53,274 compared with $95,873 for those who own their home and are Percent Uninsured Sources: IPUMS USA, University of Minnesota, www.ipums.org, and 0% 5% 10% 15% 20% 25% insured (Figure 6). Homeowners who don’t have a mortgage are gener Texas Real Estate Research Center at Texas A&M University ally characterized as seniors living in older homes that

1972 1972

are more susceptible to damage from extreme weather conditions.

Winter Storm Uri was a harsh reminder of the importance of having homeowner’s insurance, but it’s hardly the first. A surprisingly high percentage of homeowners in the Gulf region are uninsured, living under the threat of hurricanes year after year. Many have suffered home damage as a result.

When one considers the link between household income levels and being uninsured, this raises important questions. Is homeowner’s insurance too expensive for households earning a lower income? Is the cost impeding them from protecting their homes from natural disasters?

Dr. Torres (ltorres@recenter.tamu.edu) is a research economist and Roberson (joshuaroberson@tamu.edu) a senior data analyst with the Texas Real Estate Research Center at Texas A&M University. Figure 6. Average Household Income of Single-Family Homeowners by Mortgage Status, 2019

Mortgage/deed of trust or similar debt NO INSURANCE

INSURANCE

Owned free and clear

Under contract to purchase

$0 $25 $50 $75 $100 $125 Thousands of Dollars

Sources: IPUMS USA, University of Minnesota, www.ipums.org, and Texas Real Estate Research Center at Texas A&M University

Figure 7. Texas Written Exposures by Policy Form

About This Study

This study used 2019 data from the National Association of Insurance Commissioners via the Texas Department of Insurance to analyze Texas homeowner policies. Data are for owner-occupied properties with one to four dwelling units. Written Exposures (Millions) 2.5 2.0 1.5 1.0 0.5

The amount insured is based on the cost-based 0 Dwelling Fire HO-1 HO-2 HO-3 HO-5 value of the insured property. Most policies in Policy Form Texas are “H0-3,” which generally provides Sources: Texas Department of Insurance, National Association of higher coverage for Insurance Commissioners, and Texas Real Estate Research Center at Texas A&M University disasters (Figure 7). This indicates homeowner Figure 8. Texas Written Exposures by Policy Form and Amount of Insurance households that have property insurance would probably be protected by the damage caused by Winter Storm Uri. Coverage can vary among policies where lower (higher) valued homes tend to have less (more) coverage (Figure 8). Amount of Insurance (Thousands of Dollars) $500 and Over $400 to $499 $300 to $399 $200 to $299 $175 to $199 $150 to $174 $125 to $149 $100 to $124 $75 to $99 $50 to $74 $49 and under

0% 25% 50% 75% 100% Dwelling Fire HO-1 HO-2 HO-3 HO-5

Sources: Texas Department of Insurance, National Association of Insurance Commissioners, and Texas Real Estate Research Center at Texas A&M University