With the trend in insurance companies booting customers seemingly increasing, despite the increased risk/peril being not being within the control of the customer's, how do you think this will affect the real estate market when you can't mortgage a home you can't insure? In time, how do you think it may affect the economy overall?
admittedly, this is for an assignment that i've already written, i'm just wondering what others's opinions may be.
trend in homeowner's insurance dropping people
byu/matchamamma inInsurance
Posted by matchamamma
4 Comments
I’m getting 3rd hand info (on the claims side) that now that some carriers are back to being profitable, or that path anyway, that some of this shedding of unprofitable (or potentially unprofitable) business will start slowing down.
Too many people are also conflating the use cases for property insurance with health insurance, and claiming stuff they shouldn’t be. Like yeah it’s covered but property insurance is really meant for catastrophic losses. As an adjuster I’d never make a property claim for under $10k.
I imagine you’ll also see policy changes to make deductibles much higher and maybe more restrictions on how roofing is paid-out. IMO hail damage to roofing shouldn’t even be a covered loss under homeowners. It should count as wear & tear.
It’s going to completely transform the built form of housing. Most people are going to live in multi-family housing that can split the insurance bill. The single-family home is not long for this world.
Insurance is a critical part of a functioning economy. Buying a house is typically the largest investment an individual will ever make, and who would do that knowing their investment could disappear in a puff of smoke or gust of wind? What kind of bank would loan out their money knowing that could hapen? Insurance is a system of risk transfer that allows a homeowner to exchange the uncertain, catastrophic loss for a certain, smaller and (ideally) manageable amount of money. That risk transfer keeps the economy functioning.
I’ve already seen stories about less available insurance companies making it harder to buy a home. I’ve seen posts on reddit from Floridians about having to leave because their insurance costs have gone up so much, their mortgage is now unaffordable and at the same time, new people entering the state have driven up home values and so they’re not even able to downsize. However the question of is this happening often enough to make a difference in the economy and what kind of difference it will make is better answered by someone at a higher pay grade than me.
In some areas, homes will only be available to people who have enough liquidity that they don’t need to mortgage it. These people may be able to afford to build or retrofit to withstand storms or fires and so they feel comfortable making the investment. That building and retrofitting could have a beneficial effect on the local economy – but where are the construction workers going to live?
Most non-renewals are from low cost, preferred rate carriers. There is still a significant market for less affordable coverage that people can get if they have to. There are exceptions of course where the alternatives are only a state’s insurer of last resort, but that reflects state regulation making it illegal or unprofitable to insure those risks in the private market.
Insurance companies are definitely becoming more selective about what risks they will take. Many of the stories about non-renewals are people who have not maintained their homes in tip top shape. They’re not awful or falling down, just not the level of maintenance that the low cost insurers want to see to justify low rates.
I expect many insurers will also begin requiring more preventive measures to reduce losses, like proactively replacing roofs long before they are worn out, adding automatic leak shut off devices, requiring exterior sprinklers in wildfire areas, etc.
But at the end of the day, the cost of insurance reflects the risk of something going wrong. If you choose to build in a place where homes are likely to be destroyed frequently, it will be very expensive to insure there. And really, that’s just fair. Nobody else owes you a subsidy for your flooding waterfront home or house out in a fire-prone forest.