In February of this year, a statewide deep freeze occurred in Texas following a winter storm that rocked the property insurance industry. Significant damage resulted from a variety of issues following the storm. Most notably, the Texas power grid failed, leading to many uninhabitable homes in several heavily populated areas, including Houston and Dallas. Many people could not return to their homes for over two weeks, while some also experienced a shortage of both food and water. The broad impact of this event influenced insurers, governments, and homeowners in various ways. This article explores the impact on insurers, the changes implemented by governments, and the preparations necessary for homeowners ahead of the upcoming winter season.
Impact on Property Insurance Markets
The insurance impact of the Texas freeze was significant not because of the actual storm, but because of the power failure that followed. Since homeowners could not heat their homes, a high percentage of homes ended up with frozen and broken pipes, leading to an unprecedented number of claims. Most insurance policies respond to cover this type of loss, although many have a coverage cap applicable to losses resulting from a broken pipe. The below chart outlines the impact that this loss had on the insurance industry, especially when compared to similar winter losses over the past ten years. Based on this data, insurers have not historically set aside material loss reserves for winter storms in the same manner that they do for large windstorm losses.
State and Local Government Preventative Action
In response to this disaster, the state and local governments instituted various bills to improve the power infrastructure in Texas. Among other things, these laws aimed to require that all power plants weatherize, institute an emergency alert system, and provide a loan plan for power companies. In addition, local communities continue to prioritize their own plans to help protect those most vulnerable in the event of a similar disaster.
Homeowners need to take action in order to prepare for a future freeze event. Given the fragile nature of the power grid in Texas, it is likely that home pipes may be at risk of freezing if the power goes out and is unable to be restored in a timely manner. First, homeowners should review their insurance policy and verify that the sublimit applicable to broken pipes is adequate based on potential losses. The policy also needs to cover temporary housing expenses if a home becomes uninhabitable due to damage from broken pipes. Homeowners can also take the below preventative actions that will help protect their homes during a deep freeze.
Unhook any outdoor water hoses to faucets.
Wrap outdoor pipes and faucets with insulating material.
Open cabinet doors under sinks to provide warm air circulation.
Circulate the water in your home by dripping at least one faucet.
Keep the temperature at 55 degrees or warmer in the home.
Find the water shut-off valve before a deep freeze, and then if a leak occurs inside the home, shut off the water to the house immediately to prevent further damage.
Despite the preventative actions aimed to protect the Texas power infrastructure, homeowners should still take their own actions in order to ensure the safety of their family and property. Winter is right around the corner, so now is a good time to prepare.