As natural disasters continue to impact the insurance market, Texas has seen a surge in policyholders relying on the Texas FAIR Plan Association for coverage.
Private insurers considering entry into this market may have the opportunity to acquire policies through takeouts, but recent financial pressures on the Texas FAIR Plan highlight both the risks and rewards of such moves.
Here at WaterStreet Company, we routinely support Property and Casualty Insurers through takeout programs.
What Is the Texas FAIR Plan?
The Texas FAIR Plan Association (TFPA) provides insurance to homeowners who are unable to secure coverage from private insurers. It serves as a last-resort option for those in high-risk areas prone to hurricanes, floods, and other natural disasters.
Like other FAIR Plans across the country, the Texas FAIR Plan is designed to be temporary coverage until policyholders can transition back into the private market. However, with increasing weather-related losses and rising reinsurance costs, more homeowners are relying on the TFPA for extended periods.
Financial Challenges Facing the Texas FAIR Plan
Despite its role as a safety net, the Texas FAIR Plan has struggled financially in recent years. Property and casualty (P&C) insurers providing residential property coverage in Texas will be assessed to cover a $17.6 million deficit incurred by the Texas FAIR Plan Association in 2023, according to a bulletin issued by the Texas Department of Insurance (TDI).
This financial strain highlights the growing burden placed on the state-backed program. As losses continue to mount, private insurers must carefully assess their positions in this market.
While the Texas FAIR Plan has not yet participated in takeout programs, unlike Florida and Louisiana, which routinely offer this program, increasing pressures may lead to new opportunities in Texas.
The Role of Takeouts in Texas
Takeouts occur when private insurers acquire policies from a state-run FAIR Plan, helping transition policyholders from public coverage back into the private market. Other states frequently facilitate takeouts, allowing insurers to expand their customer base while reducing strain on state-backed programs.
In Texas, takeouts could provide a similar benefit. With the Texas FAIR Plan currently managing a significant number of policies, private insurers may have an opportunity to enter the market by offering more comprehensive coverage and competitive rates.
Benefits of Takeouts for Private Insurers
For insurers looking to grow their market share, takeouts present several advantages:
- Immediate Policyholder Growth – Acquiring policies from the Texas FAIR Plan would allow insurers to rapidly expand their customer base without incurring high marketing costs.
- Premium Revenue Stability – Policies obtained through takeouts provide a consistent stream of premium revenue, which can help stabilize an insurer’s financial outlook.
- Regulatory Favorability – Participating in takeouts can demonstrate an insurer’s commitment to serving high-risk areas, potentially fostering goodwill with state regulators.
Challenges of Takeouts in Texas
While takeouts present opportunities, insurers must navigate several challenges unique to Texas’s market:
- High Catastrophic Risk – Texas is vulnerable to hurricanes, severe storms, and flooding, increasing potential losses for insurers acquiring high-risk policies.
- Reinsurance Costs – The rising cost of reinsurance can impact profitability, particularly for insurers with significant exposure to high-risk properties.
- Regulatory Constraints – Texas insurance regulators may impose requirements on insurers participating in takeouts, such as maintaining coverage in designated areas.
Takeout Market Shifts
The recent $17.6 million deficit assessment signals growing financial instability within the Texas FAIR Plan. If losses continue to rise, state regulators may push for increased takeout activity to alleviate pressure on the program.
Private insurers evaluating takeout opportunities must weigh the risks associated with high-risk policies against the potential for long-term market growth. While Texas presents significant challenges, insurers equipped with robust risk management strategies and advanced underwriting technology can position themselves to succeed.
Texas FAIR Plan in 2025
As Texas’s insurance landscape evolves, private insurers will play a crucial role in shaping the future of the market. Takeouts offer a strategic avenue for insurers to expand their presence while providing policyholders with more sustainable, long-term coverage options.
However, with the Texas FAIR Plan facing ongoing financial strain and increased regulatory scrutiny, insurers must carefully assess the feasibility of takeouts in this environment. By leveraging data-driven decision-making and innovative risk management solutions, insurers can navigate the challenges of Texas’s high-risk insurance market while capitalizing on the opportunities presented by the state’s FAIR Plan policies.
Whether you’re just getting started or preparing for a takeout, WaterStreet has you covered with nearly 20 years of experience supporting our clients through takeouts.
Reach out to WaterStreet Company today to request a consultation and demo.
