Texas tornadoes: Why many could be underinsured

The destructive storms of late December have left insurers on the hook for more than $1 billion, but many policyholders will still be left wanting

Insurance News


Many victims of the tornadoes that devastated homes and buildings the Dallas metro area in late December may find themselves without enough insurance money to rebuild or replace their homes.

The destructive storms of late December have left insurance companies on the hook for approximately $1.2 billion, according to preliminary estimates from the Insurance Council of Texas. The nine confirmed tornadoes and localized flooding that affected Texas on December 26 killed 11 people and damaged or destroyed up to 2,000 structures. A large number of cars and trucks were also damaged in the extreme weather.

And while coverage for tornado damage is typically included in homeowners insurance policies, statistics from various insurance bodies suggest a few policyholders are significantly underinsured.

According to a 2008 study from Marshall & Swift, a full 64% of US homes are undervalued for insurance purposes. That number only increased as home values tanked an average 33% in the late 2000s and consumers began looking for ways to save money.

The result? People may not have enough money to rebuild their homes.

In fact, the same study suggests most policies leave homeowners with enough money to rebuild just 81% of homes.

Any renters in the area may be in even more trouble. Only 43% carry renter’s insurance, according to statistics from the Insurance Research Council.

Additional help may come from a presidential declaration of disaster, in which the uninsured or underinsured could receive federal aid. However, individual payments are capped at a little more than $30,000 and the average payment is likely to be much lower.

Tornadoes and severe thunderstorms were the number one cause of insured losses from natural catastrophes in the US in 2011, though typically tornadoes rank second behind hurricanes and tropical storms.

To mitigate any risk of underinsured homeowners, agents are urged to reevaluate their clients’ amount of coverage every two years, making note of major changes such as home remodeling or roof replacement.

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