Insurance availability crises are nothing new. Nor is finger-pointing about what exactly causes them. In Texas, a red state that is nonetheless home to a robust plaintiffs’ bar, sparring in a particularly active legal blogosphere may portend the arrival of a new insurance availability crisis.

The physical cause of the crisis is a Texas specialty — hail. Texas leads the nation in the number of hail events experienced each year. In 2013, that number was 651, nearly 150 more than Kansas, the second most-afflicted state. Since 2000, Texas has been home to 20 percent of the nation’s hail claim losses.

Nationally, there has been a 70 percent increase in hail-related loses over the past six years. While this uptick could be the result of remarkable atmospheric change, it is more likely the result of decidedly earthbound agency – a labor market at work.

In the aftermath of Hurricane Ike, the need for personnel to assess, adjust and repair damage outstripped demand quickly. To fill the void, entrepreneurial armatures thrilled to the opportunity. Predictably, this “Ike contingent,” under-prepared and overly sought as they were, made missteps as they gained experience on the job. As Ike-related claims were exhausted, the Ike contingent found they had picked up skills not readily marketable absent catastrophe damage. Like water following the path of least resistance down a canyon, the Ike contingent moved predictably toward the analogous world of hail damage.

This led Steven Badger, a defense attorney, to ask “What the hail is going on in Texas?” Provided that one can overlook Mr. Badger’s goofy title to examine the piece itself, he presents a formidable argument that structural infirmities within the Texas civil justice system, exploited by the Ike contingent, are compromising the ability of insurers to interact appropriately with their clients. As a result, the frequency and severity of hail claims have increased.

Ultimately, Mr. Badger imagines that:

This pattern will continue until the insurance companies curtail their coverage to the point that it no longer makes sense for these third parties to get involved in the insurance claims process, or greater judicial and legislative attention is brought to bear.

Folks at the Merlin Law Group, a plaintiffs’ firm, proffered a repost to this characterization of Texas’ hail situation. Corey Harris writes that Mr. Badger wrongly places the entirety of the blame for the growth in hail claims on those attempting to assist policyholders, though he does allow that there are bad apples within the Ike contingent. Instead, Mr. Harris contends that insurers have not been prompt or fair in their payments because they are tiring of making large payouts. Chip Merlin goes a step further and asserts that:

When the frequency of a loss increases significantly from past historical levels, do not expect the insurance industry to accept this without a response.

No doubt, insurers have responded to the Ike contingent. They have had to, in order to protect their other insureds from cross-subsidization and outright fraud.

Mr. Harris’ speculation and Mr. Merlin’s ambiguous observation both suggest that insurers in Texas are actively and systematically dragging their feet in such a way that a wave of new hail claims has become necessary to remedy their behavior. Neither inclination is plausible. The scale of the conduct necessary to dictate the kind of uptake in hail claims that has taken place in Texas simply defies belief. The basic labor market reality of the Ike contingent’s industry is a more plausible explanation.

As the next legislative session nears, it bears keeping in mind that Texas already has the highest homeowners insurance rates in the country. If left unchecked, the Ike contingent and enterprising civil justice advocates could see it driven higher.

Featured Publications