Homeowners in Texas deal with severe weather in the form of hailstorms, tornadoes and wildfires.
Over the course of the last few years, those homeowners are also dealing with what state insurance experts call a “systematic effort by certain lawyers and their associates to abuse both the insurance claims system and the court system” for their personal gain. The experts are calling on the Texas Legislature to put a stop to some well-documented techniques which might result in higher insurance rates for residents of the Lone Star State.
Wind and hail damage has set the Texas marketplace back nearly almost $23 billion in damages- from more than 3.1 million claims – since 2004. Those figures represent a total which outstrips losses from all other natural hazards combined.
Insiders say the first signs of the “hailstorm lawsuit” crisis popped up after a spectacular event ripped through Hidalgo County in 2012. Up to that time, only 2 percent of insurance claims resulted in lawsuits, but as 30,000 claims were filed following the storm in Hidalgo County, suddenly 22 percent resulted in lawsuits, and nearly 80 percent of those lawsuits were filed once an initial claim was paid by an insurer.
The experts say the pattern goes like this: after a homeowner settles a claim with their insurer a third-party suggests the homeowner was underpaid. Then it’s suggested that filing a lawsuit which bypasses existing consumer and insurer dispute resolution processes is the right course of action. Attorneys promise a homeowner they won’t be responsible for any additional legal fees.
But here’s the catch; homeowners aren’t told that a relatively small part of any settlement or award will actually be applied to repairing their damaged home. Insurers say most the settlement proceeds go into the pockets of lawyers and others, and that ultimately, homeowners and their neighbors end up paying for the litigation process in the form of higher premiums.
As recently as 2015, insurers say just .06 percent of more than 465,000 homeowner claims ended in “justified” complaints filed standard resolution processes. Another poll found that 84 percent of those who filed a claim were satisfied with how their insurance company handled the claims process.
The Texas Department of Insurance (TDI) recently conducted a far-reaching study of litigation and market data collected about homeowners’ insurance, and their findings were a touch unsettling for consumers. The TDI report arrived at a startling conclusion – the state is on the edge of an insurance crisis.
According to this report, litigation has spiked as parts of Texas were hit by vicious hailstorms. Those court claims – up some 1,400 percent in parts of the state most direly affected – meant insurers faced enormous long-term losses. Over the last 20 years, insurers in the state paid out more in claims than they collected in premiums, and that resulted in an unprecedented market destabilization, rate increases and a cutback on the availability of policy options for consumers.
Now in 2017 experts like Beaman Floyd, the Executive Director of the Texas Coalition for Affordable Insurance Solutions, say the state is facing a crisis in regards to homeowners’ insurance related to hail and wind coverage.
The TDI report shows that, while increased litigation has yet to force statewide rate increases, it also points to another storm on the horizon: the fact that “abusive litigation” will likely impact actuarial predictions of future loss, and those predictions will drive up insurance prices.