by Sylvia Wood
First, high winds blew off the roof of a cafeteria in Hearne ISD. Later, hail caused significant damage, followed by flooding at the high school caused by Winter Storm Uri in 2021, and then another costly hail a year later. “We get really nervous around here when the sky gets dark,” said Jay Davis, Hearne ISD’s executive director of operations.
The county, located about 20 miles north of Bryan-College Station, isn’t alone in worrying about what the weather could do to the property. Recent weather events have caused billions of dollars in covered property losses across Texas to businesses, homes and schools.
“I’ve become best friends with our claims adjuster over the last three years,” said Davis, whose district has property coverage through its membership in the TASB Risk Management Fund. As the largest venture pool in Texas, serving school districts for nearly 50 years, the Fund is on the front lines trying to help its members weather the storms as they tackle one of the most challenging and expensive property coverage and insurance markets in recent history.
“The property coverage market in Texas is particularly challenging because of the size of the state and the variety of severe weather events that can occur,” said Mary Barrett, associate executive director of TASB Risk Management Services. “In the last few years, school districts have been particularly affected as we’ve seen fewer providers willing to take those risks, pushing prices up.”
All of these factors contribute to what is known in the industry as a “tight” insurance market. Earlier this year, State Farm announced it would no longer accept new applications for property and casualty coverage in California due to wildfire and construction costs. In Florida, Farmers Insurance has become the fourth major insurer to exit the state amid record hurricane losses, leaving homeowners scrambling to find new providers.
For Texas school districts, the risk of severe weather also has consequences — namely, higher risk fund contributions or insurance premiums, higher deductibles and fewer providers willing to offer coverage.
“This is the toughest property insurance market I’ve 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.”
In the first half of 2023, Texas led the nation with $7.2 billion in insured losses. That figure includes roughly $1 billion in hail damage last June alone. Texas has led all other states in the most hailstorms in nine of the past 10 years, according to the Insurance Information Institute.
In 2022, many public schools in Texas suffered 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 in insured losses overall in Texas.
Members of the fund’s property coverage program, which covers half of Texas ISDs, generated $100 million in covered losses due to the 2021 freeze imposed by Uri. Hearne ISD was one of those member districts that was hit hard by the storm. The high school’s sprinkler system froze and burst Saturday night, causing extensive water damage. One of the first calls Davies made was to his property claims adjuster TASB.
“We had a lot of water in the building and we were able to get crews here this Sunday morning to start getting the water out,” Davis said. “When the kids came back after spring break, they already had two hallways completed so we could start school.”
Inclement and unexpected weather is one of the more visible factors that drive up property coverage costs for school districts. But there are other global market forces, 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 take on as much risk and buy reinsurance to help reduce uncertainty.”
In turn, these reinsurers charge higher rates, which are ultimately passed on to policyholders and risk pool members. Between January and June 2023, property reinsurance rates rose an average of 33%, according to reinsurance brokerage firm Howden Tiger.
Here in Texas, school districts have experienced these price increases when renewing their property coverage or seen them in the responses they receive when they send out requests for insurance quotes. Increasingly, Barrett said, some areas are seeing only one or two responses and more limited coverage.
For school districts, the timing of a tight insurance market couldn’t be worse. In 2022, Texas will join California as the only states with a population above 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 problems and labor shortages have increased the value of buildings, making it more expensive to insure and repair facilities when damage occurs. Values in some states, including Texas, rose 34% between 2020 and 2022, according to Marshall & Swift Trend Factors.
Amid these challenges, school districts are also grappling with tight budgets, as funding levels have remained flat since 2019 despite increased costs related to teacher shortages and record inflation. This year, a growing number of districts had to adopt deficit budgets without leaving a cushion for higher deductibles or coverage costs.
“We understand that districts are facing very difficult choices right now with their budgets,” Barrett said. “In this challenging environment, we continue to work with fund members to ensure that the fund provides coverage options that are consistent with our mission to support public education.” Especially now, we are committed to helping districts come up with coverage solutions that offer budget security in uncertain times.”
How the fund can help
When districts join the fund, they become part of a self-insured, nonprofit risk group of more than 1,000 Texas education organizations that collaborate to share risk and protect their resources. As part of this collective goal, the Fund encourages all its members to take advantage of training, insights and resources to help mitigate risk and reduce the potential for budget surprises.
In today’s challenging property coverage market, the Fund encourages districts to pay special attention to each 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 the largest facility investments in the area,” Barrett said. “Districts, of course, want to choose roofing materials based on factors such as cost and energy efficiency, but they also need to make sure their roofs will withstand the weather conditions in their regions – especially hail.”
Having documentation and a comprehensive roof inspection and maintenance plan will be helpful for districts looking to bid on a new coverage provider or those who have a claim following a weather-related event.
When Hearn had to replace the high school’s roof after a storm, Davis recalled how they used a thicker-than-standard membrane as part of their risk mitigation plan.
The fund “has been amazing because we’ve actually had to replace roofs twice in the last five years,” he said. “The second hail came and everything we replaced the first time was not damaged because we used the thicker membrane. The renewed materials saved many roofs in the second hail.”
Another strategy that can help districts stay prepared is to conduct regular building assessments of all district facilities every two to three years. A recent appraisal will better reflect actual replacement costs if the building is damaged in a weather event.
Finally, like homeowners looking to save on their property insurance, some areas may also consider choosing higher deductibles – $500,000 or even more than $1 million. Not every area will be able to afford such a high deductible in the event of anything other than a catastrophic loss, but it is a strategy to reduce the initial cost of coverage.
“What’s happening with property coverage right now can feel pretty overwhelming for areas trying to navigate a tough 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 lies ahead — from hurricanes and hailstorms to catastrophic ice events — and that commitment will not change.”
Sylvia Wood is a staff writer for Texas Lone Star. Staff writer Beth Grismer contributed to this story.
This article was first published in the November 2023 issue of Texas Lone Star.