Districts Face Rising Property Insurance Costs

First, high winds blew off a cafeteria roof at Hearne ISD. A hailstorm later caused significant damage, followed by a flood in the high school caused by Winter Storm Uri in 2021, and then another costly hailstorm a year later. “We get real nervous around here when the sky gets dark,” said Jay Davis, Hearne ISD executive director of operations.

The district, located about 20 miles north of Bryan-College Station, isn’t alone in worrying about what the weather can do to property. Recent weather events have caused billions of dollars in covered property losses across Texas to businesses, homes, and schools.

“I have become best friends with our claims adjuster over the last three years,” said Davis, whose district has property coverage through its membership in TASB Risk Management Fund. As the largest risk pool in Texas serving school districts for nearly 50 years, the Fund has been on the front lines trying to help its members weather storms while dealing with one of the most challenging and expensive property coverage and insurance markets in recent history.

“The market for property coverage in Texas is particularly difficult because of the size of the state and the diversity of severe weather events that can occur,” said Mary Barrett, associate executive director for TASB Risk Management Services. “Over the past few years, school districts have been particularly impacted as we’ve seen fewer providers willing to take on those risks, pushing prices up.”

All those factors add up to what’s known in the industry as a “hard” insurance market. Earlier this year, State Farm announced it would no longer be accepting new applications for property and causality coverage in California because of wildfire and construction costs. In Florida, Farmers Insurance became the fourth major insurer to exit that state amid record hurricane losses, leaving homeowners scrambling to find new providers.

For school districts in Texas, the risk of severe weather has also had consequences — namely more expensive risk pool contributions or insurance premiums, higher deductibles, and fewer providers willing to offer coverage.

“This is the hardest and most difficult property insurance market I have seen in my 50-plus year career,” said Bob Reim, an independent insurance consultant who works with dozens of Texas school districts through the Robert V. Reim Company. “Premium increases of 50% or more are not unusual.”

Record Losses

During the first half of 2023, Texas led the country with $7.2 billion in insured losses. That figure includes an estimated $1 billion from hailstorms this past June alone. Texas leads all other states with the most hail events in nine of the last 10 years, according to the Insurance Information Institute.

In 2022, many Texas public schools experienced severe damage from frozen pipes during Winter Storm Elliott in December. And Winter Storm Uri in February 2021 is estimated to have caused more than $23 billion of insured losses overall in Texas.

Members of the Fund’s property coverage program, which covers half of the ISDs in Texas, generated $100 million in covered losses due to the 2021 freeze brought on by Uri. Hearne ISD was one of those member districts hit hard by the storm. The high school sprinkler system froze and burst on a Saturday night, causing extensive water damage. One of the first calls Davis made was to his TASB property claims adjuster.

“We had a lot of water in the building, and we were able to get crews here that Sunday morning to start getting the water out,” Davis said. “When kids came back after spring break, they already had two hallways completed so that we could start school.”

Reinsurance Costs

Severe and unexpected weather is one of the more visible factors driving up the property coverage costs for school districts. But there are other global market forces at play as well, including rising reinsurance costs for insurers and risk pools.

“Reinsurance can be described as insurance for insurance companies and risk pools,” Barrett said. “Insurance companies and risk pools can only take on so much risk and purchase reinsurance to help reduce uncertainty.”

In turn, those reinsurers charge higher rates that ultimately get passed on to policy holders and risk pool members. Between January and June 2023, property reinsurance rates climbed 33% on average, according to reinsurance brokerage firm Howden Tiger.

Here in Texas, school districts have experienced these price hikes on their property coverage renewals or seen them in the responses they get when they put out requests for insurance proposals. Increasingly, Barrett said some districts are only seeing one or two responses and more limitations in coverage.

Bad Timing

For school districts, the timing of a hard insurance market couldn’t be worse. In 2022, Texas joined California as the only states with populations of more than 30 million, according to the U.S. Census Bureau. To accommodate growing enrollments, districts have had to add new facilities and buildings, all of which require property coverage.

In addition, inflation, supply chain issues, and labor shortages have driven up building values, making it more costly to insure and repair facilities when damage occurs. According to Marshall & Swift Trend Factors, values in some states, including Texas, grew 34% between 2020 and 2022.

Amid these challenges, school districts are also grappling with budgets stretched thin as funding levels have stayed flat since 2019, despite increased costs related to teacher shortages and record inflation. This year, an increasing number of districts have had to pass deficit budgets, leaving no cushion for higher deductibles or coverage costs.

“We understand that districts face a lot of tough choices right now with their budgets,” Barrett said. “In this challenging environment, we’re continuing to work with Fund members to ensure the Fund provides coverage options that align with our mission to support public education. Especially now, we’re committed to helping districts come up with coverage solutions that offer budget certainty in uncertain times.”

How the Fund Can Help

When districts join the Fund, they become part of a self-insured, not-for-profit risk pool of more than 1,000 Texas education organizations collaborating to share risk and protect their resources. As part of that collective goal, the Fund encourages all of its members to take advantage of training, insights, and resources to help mitigate risk and lessen the potential for budget surprises.

In today’s challenging property coverage market, the Fund encourages districts to pay particular attention to every roof they have, including documenting the type of roofing material, its age, and maintenance history.

Not only will potential insurers ask for this information, but Barrett said it’s also an essential part of developing a comprehensive roof and building maintenance program that can extend the life of this expensive asset.

“Roofs are among a district's biggest facility investments,” Barrett said. “Districts, of course, want to choose roofing materials based on factors like price and energy efficiency, but they should also make sure their roofs will stand up to weather patterns in their regions — especially hail.”

Having documentation and an overall roof inspection and maintenance plan will come in handy for districts either seeking to go out to bid for a new coverage provider or for those who have a claim after a weather-related event.

When Hearne had to replace the roof on the high school after a storm, Davis recalled how they used a thicker membrane than was standard as part of their risk mitigation plan.

The Fund “has been incredible because we have actually had to replace roofs twice in the last five years,” he said. “The second hailstorm came and everything we replaced the first time was not damaged because we used the thicker membrane. The upgraded materials saved a lot of roofs in the second hailstorm.”

Another strategy that can help districts stay prepared is to do regular building appraisals on all district facilities every two to three years. A recent appraisal will be more reflective of actual replacement costs if a building is damaged in a weather event.

Finally, like homeowners seeking to save on their property insurance, some districts might also consider opting for higher deductibles — $500,000 or even more than $1 million. Not every district will be able to afford such a high deductible in the case of anything but a catastrophic loss, but it is a strategy to reduce upfront coverage costs.

“What’s happening with the property coverage right now can feel pretty overwhelming for districts trying to navigate a hard insurance market,” Barrett said. “Fortunately, the Fund has a long history of stability and success in offering comprehensive risk solutions to school districts for whatever crisis may lie ahead — from hurricanes and hailstorms to catastrophic ice events — and that commitment won’t change.”

Sylvia Wood is a staff writer for Texas Lone Star. Staff writer Beth Griesmer contributed to this story.

This article was first published in the November 2023 issue of Texas Lone Star.