The Texas coast, renowned for both hurricanes and expensive property insurance, reached a new milestone Tuesday when a state insurance authority made a high-stakes bet.
The association sells insurance to nearly 300,000 coastal property owners who can’t buy coverage on the private market and agreed to help local residents and businesses by freezing its rates in 2026.
But in exchange, the Texas Windstorm Insurance Association will have roughly $2.5 billion less than it has in 2025 to pay claims, which could leave policyholders unable to collect money after a catastrophic hurricane.
The gamble is the latest example of how the nation’s most disaster-prone states are trying to restrain property insurance rates as climate change, inflation and other costs are making coverage increasingly expensive and scarce.
The windstorm association, which the state created in the early 1970s, has become Texas’ largest coastal property insurer as companies have withdrawn from the area to avoid massive losses from a catastrophic hurricane.
It’s also one of the nation’s largest state-chartered insurers of last resort. The association’s policy count hit a record 280,000 in June — up from 185,000 at the end of 2020.
Similar insurers in California, Florida and Louisiana have seen huge growth this decade as insurance companies retreat from areas exposed to storms, wildfire and flooding. All face pressure to control rates — and manage imperfect solutions.
The Texas association’s decision to slash its reserves in 2026 “may lower rates but it doesn’t lower the risk,” said Carolyn Kousky, a vice president at the Environmental Defense Fund and leading insurance expert. “It just decreases the financial stability of the program.”
The association will have about $3.8 billion in reserves in 2026 compared with $6.2 billion in 2025 even as it is expected to add thousands of new policies. The reserves include cash on hand, reinsurance and assessments that the authority is authorized to impose on insurance companies across Texas.
The nearly 40 percent drop in reserves was facilitated by the Texas Legislature and a law enacted in June that reduces the amount of reserves the association must have to pay claims.
Local officials and business groups strongly supported the rate freeze, which the association board approved Tuesday on a 7-1 vote.
“We’re losing our lower and middle class in Galveston because you can’t afford to live here. It’s insurance that’s running people away,” said Brian Maxwell, city manager of Galveston, an island city of 50,000 people on the Texas coast. “I know that most of my police officers and firefighters don’t live on the island. It’d really be helpful for us if they did.”
The Texas association covers wind damage to properties in the 14 coastal counties from the Louisiana line to the Mexico border including parts of Houston. It does not cover flood or fire damage. And it does not insure properties in the central Texas counties where flash flooding on July 4 killed 138 people.
But like the flooded counties in Texas Hill Country, the insurance association could be forced to rely on state taxpayers for help.
“The generally accepted reality is that if we have a storm greater than our funding, the Legislature will meet and figure out a way for people to get paid,” James Murphy, the association’s chief actuary and vice president of enterprise analytics, told the board Tuesday.
States plagued by insurance woes
Although climate change, inflation and other cost increases are the usual suspects blamed for rising insurance rates, states such as Texas are addressing the issue by changing their laws.
The Florida Legislature sought to rescue the state’s teetering insurance market when the state’s insurer of last resort more than tripled in size between 2020 and 2023. The size of a state insurer of last resort is often a proxy for the health of its insurance market.
As insurance companies dropped policies and withdrew from hurricane-prone areas, Florida Citizens Property Insurance Corp. saw its policy count soar to 1.4 million in September 2023 from 420,000 four years earlier.
More alarmingly, Citizens’ exposure — the total value of its insured property — soared to $620 billion from $110 billion, records show. It was the largest property insurer in Florida by a wide margin.
In a special session in 2022, Florida lawmakers overhauled laws covering claims litigation and other procedures that they said encouraged policyholders to file lawsuits and file dubious claims.
Citizens’ policy count has dropped to 783,000, its exposure is less than $300 billion and 11 new insurance companies have started writing policies in Florida.
But attorneys say policyholders now struggle to fight back against payments that they think are too low because of new legal barriers.
In California, state officials are struggling to deal with a faltering insurance market in part because a ballot measure approved by voters in 1988 makes California one of the most difficult states for insurers to raise rates.
As insurers have pulled back from wildfire-prone areas, the California FAIR Plan has grown to 610,000 policies from 208,000 in 2020.
California Insurance Commissioner Ricardo Lara tried to help insurance companies after the Los Angeles wildfires in January by letting them pass some costs directly to ratepayers. Consumer groups said Lara’s action violates state law and are suing.
In Texas, the windstorm association rate freeze was enabled by a state law enacted in June that changed a single number in the Texas Insurance Code.
For decades, Texas law has required the windstorm association to have enough in reserves so it could pay all claims after a so-called 1-in-100-year storm — a storm so damaging that it has only a 1 percent chance of occurring in a single year.
The new law changes “100” to “50” and requires the association to have only enough reserves to pay for a less-severe 1-in-50-year storm. The change will let the association in 2026 buy far less reinsurance, which primary insurers buy to pay claims after a catastrophic event.
But it also puts Texas out of step with other state-chartered insurers, which typically have sufficient reserves to pay for a 1-in-100-year storm.
Republican state Sen. Mayes Middleton, who sponsored the change, said at a legislative hearing in April that the association has paid for reinsurance for years but hasn’t used it since Hurricane Ike in 2008.
“Ratepayers have had to pay $1.8 billion in premiums for reinsurance and have never drawn on it since Hurricane Ike,” Middleton said at a legislative hearing in April. “We’ve spent too much on reinsurance.”
The Legislature easily passed Middleton’s measure. The lawmaker, who is running for state attorney general in 2026, addressed the association board Tuesday.
“This addressed the out of control reinsurance costs that we’ve seen skyrocketing for TWIA policyholders,” Middleton said via a video link from Austin. “Ratepayers cannot pay for an increase right now.”
