Historic Texas Freeze Damage

Property insurers face an estimated $18 billion in losses to homes and businesses during a long period of frigid weather in Texas and many other states, equal to a large hurricane, according to a leading risk modeling company.

About half of the payments will go to Texas, and businesses—rather than homeowners—will collect much of the costs, according to Boston-based Karen Clark & Co., which runs disaster modeling software commonly used in the U.S. insurance industry.

Most of the damage is caused by the widespread freezing of pipes, which have burst inside schools, museums, churches, commercial premises, and homes, leading to significant water damage, Ms. Clark said in a Friday interview.

The harm is distributed over 20 states. Besides Texas, hard-hit states include Arkansas, Missouri, Oklahoma, and Tennessee, Clark said.

"This event has snow and ice, but it is mostly a freezing event, and most of the claims will be related to water damage," she said. Her firm's forecast involves the collapse of commercial roofs "and the sprinkling of lots of different types of claims, but water claims will dominate them."

It was dubbed a "perfect storm" in how it combined low temperatures with snow and ice that contributed to power outages. Extreme temperature fluctuations lasted longer than this form of weather typically happens in southern states.

If the industry does turn out to be $18 billion, the winter storm will end up on the top-10 list of the most expensive natural disasters in the U.S., measured by damages to property insurers. According to the Insurance Information Institute, it will fall just below Hurricane Ike in 2008, costing the industry $21.51 billion.

Ike is ranked eighth on the list of the trade community. Ninth is currently the 2012 drought, which caused $16.42 billion in insured damage, and in 2005 Hurricane Wilma is 10th, with $13.84 billion in insured damage.

"Texas was ground zero of the temperature anomalies," said Clark. "And it wasn't just part of Texas. It was the whole state. You've had a lot of people affected."

Insurers say claims have been made even though they have not yet achieved a significant hurricane's status. The spokeswoman said big home and car insurer USAA had issued more than 30,000 requests on Friday morning. "We're starting to get closer to what we'd see from [category] 1 or 2 hurricanes," she said.

At State Farm, the nation's largest premium home insurer, "we've received thousands of claims from customers across the state of Texas," the spokesperson said Friday morning. Most of them relate to property damage caused by frozen and damaged pipes, but policyholders still file auto claims.

On the other side, for all of 2020, State Farm had 75 frozen water pipe claims across Texas, spending around $769,000 on those claims for an average of $10,300, the spokesperson said.

Kenneth Tolson, a senior executive at Crawford & Co., who oversees claims that have been changed for several insurers, said the company "sees significant claims in the markets of Dallas, Houston, and San Antonio," as well as in other areas of Texas and Oklahoma and Louisiana.

In addition to water damage, reports are being made for power surges, roof falls, falling trees hitting homes and businesses, and food spoilage.

Home and business property policies usually protect against water damage arising from burst pipes. This contrasts with the exclusions in traditional floodwater home insurance arising from storm surges or overflows, which are exempt from standard home insurance and must be paid separately.