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February’s freeze left Texas in disarray, insurers and policyholders look to the state government for support and preventative measures

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February’s power crisis and freeze left more than  4.8 million people in Texas without power or clean water during a winter storm  that killed at least  111 people (mostly from hypothermia). Health officials also attributed deaths to motor vehicle accidents, carbon monoxide poisoning, medical equipment failure and lack of home oxygen. 

Texas’s losses from the deep freeze and power outages could reach  $90 billion, with only around $20 billion covered by insurance. State Farm reported seeing as many claims in Texas as it had across the U.S. all last year just from claims made in regards to frozen pipes. Texans have been  calling their homeowners’ insurance carriers and opening up claims based on the property damage that resulted from the weather and power outages. USAA reported it had received more than 20,000 weather-related claims by mid-March, and the Insurance Council of Texas said  it expects hundreds of thousands of claims from vehicles, homes, businesses and renters. The council said it could take as long as  1.5 yearsto resolve the majority of claims made during this event. 

At the height of the freeze, nearly half the grid’s total power generation capacity was offline as weather conditions caused failures in every type of power source (natural gas, coal, wind and nuclear), totaling about  46 gigawatts of generation not available for use. It also led to chemical plant shutdowns that disrupted global supply chains, causing a  shortage of raw materials as well as a standstill in the world’s largest petrochemical complex. The water shortage also impacted plant processes, as vast amounts of water are needed to prevent fires. Plants were asked to turn off their power to reserve electricity, but industry leaders  reported that it isn’t as simple as turning off a switch.

Following that week,  Northern Texas was hit with thunderstorms and large hail that resulted in over $100 million in damages. Most of those costs will be covered by insurance. 

Additional information on the 2021 winter storm’s impact on insurance: 

Today, many property insurance policies include specific provisions regarding coverage for utility service interruptions which center around the reason why the power failed and whether it failed on or away from the policyholders’ premises. In some policies,  utility service interruption coverage is subject to a waiting period, so the service interruption must exceed a certain number of hours or days. Other policies include coverage for spoilage caused by a power outage. 

While power failures arise in the context of storms, insurance companies argue that coverage is  precluded by limitations involving flood, rain and other forms of water damage which is typically not subject to coverage. While this storm was quite unusual and insurers actively look for ways to relieve their policyholders, they are also relying on the government to step in. 

Berkshire Hathaway Energy has been lobbying  Texas  lawmakers to support an  $8 billion plan to build 10 new natural gas power plants  that would provide energy during peak consumption hours to prevent a shutdown like this to happen again.  House Bill 11  was introduced in mid-March, which would give authority to the Public Utility Commission of Texas to regulate the electric industry, developing and enforcing standards to prepare power plants for extreme weather.

Other  bills created in response to the Texas winter storm include:

  • House Bill 10: replace ERCOT’s current director positions with unpaid political appointees who reside in the state of Texas
  • House Bill 12: direct a study  and implementation of statewide emergency alert system for power outages
  • House Bill 13: development of Texas Energy Disaster Reliability Council to coordinate power, natural gas companies and utilities for reliable electric service
  • House Bill 16: prohibition of retail electric providers from selling products based on wholesale power prices in the market 
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