Housing price hikes linked to widening insurance coverage gap

It’s no secret that prices for homes in the Austin metro area, along with tax valuations, have recently gone through the roof

However, the price hikes have also brought about another unexpected issue: a potential gap in insurance coverage that is catching homeowners by surprise.

"I haven’t even thought about that, with the cost of everything going up if we are covered," said Cedar Park homeowner Pam Bush.

It’s a homeowner's dilemma: when a catastrophic event happens, but there’s not enough insurance money to pay for the entire rebuild. "We were paying for a certain amount, but to replace the house it’s going to cost a lot more. So we're underinsured," said Warren Bush.

It’s a situation that’s being monitored, according to Camille Garcia with the Insurance Council of Texas. "I think this is a call to action right now," said Garcia.

Garcia told FOX7 the recent spike in home prices is not exactly why a potential insurance coverage gap is widening. It’s the cost of building materials. The National Association of Home Builders recently issued a report that indicated the increase in lumber prices has caused the price of an average single-family home to increase by almost $36,000 when compared to the price last year. Along with building materials going up, there is one other critical factor.


"What the industry is seeing right now is the shortage of labor, so when we are talking about for the heels of the winter storm we just experienced we saw a short of labor and that shortage of labor meaning that the labor market has fewer folks but the cost of labor is going up. So when we are talking about recovery, when we are talking about the cost of actually paying for that labor, those are the trends we are seeing increase significantly, said Garcia.

Being underinsured could also impact payments on smaller claims with the cost of repair being prorated.

"Let’s say your garage caught fire, it’s a detached garage worth $10,000 and you were only insured to 50% of the home’s value, potentially your insurance company can come back and say you were only insured to 50% of your value and so your claim payment could be potentially 50%," said Garcia.

Some insurance companies provide a safety net for policyholders who may end up being underinsured. It’s something like a cost increase buffer, but not every insurance company offers that kind of payout protection.

"So then what happens when all this insanity slows down, and people settle down and the price of homes aren’t being overbid, so then are we going to be too insured, like will the price of insurance ever go back to what it should be, if we over-insure right now," asked Pam Bush.


The answer to that, according to Garcia, involves yearly if not quarterly updates from your agent.

"Make that call today, we are in the midst of hurricane season, we are looking at traditional tornado season, in the north, so it really is time now to have those conversations and make sure that here in the state of Texas, we have severe weather almost all year long, take steps to protect yourself," said Garcia.

A report by the survey group Value Penguin noted that 76% of consumers who responded to its inquiry said they have shopped around for a better insurance deal.  In doing so those in the survey said they save money. 

Another way to save on insurance is to increase your deductible. Doing that can lower the premium cost without sacrificing coverage.