2025 Home Insurance Predictions: Stability on the Horizon, But Climate and Regulatory Risks Remain
Reading time • 7 minutes
By Matic
Introduction
The home insurance market saw several notable changes this year. After two years of steep rate increases and reduced coverage availability from carrier withdrawals in some regions, 2024 showed early signs of stabilization. Still, premiums remain high as carriers work to recover past losses while navigating ongoing climate risks and regulatory pressures. Here’s a look back at the key trends from 2024 and what may be ahead for homeowners, lenders, and the home insurance industry in 2025.
Rising premiums continue, but rate of growth may be stabilizing
2024 began with record-breaking premium increases, impacting both new policies and renewals. Homeowners saw an average rate surge of 17.4% for new policies — significantly higher than previous years as inflation, severe weather, and reinsurance costs hit hard. To illustrate, the average homeowner who bought their policy in 2021 was paying nearly 69% more three years later at their 2024 renewal, or an extra $865 annually. As of November, however, rate growth showed signs of tapering; the average increase for new policies dropped from 10.7% in the first half of the year to 6.6% in the second half, indicating early signs of stabilization.
Looking forward to 2025, premium growth is expected to continue, but at a more controlled pace. Insurers are seeing some relief from slowing inflation, which may help keep prices from increasing as sharply. That said, the impact of potential weather events remains a wild card, especially for states prone to extreme weather (more on this later). While we expect a more stable outlook, homeowners should still anticipate upward pressure on premiums.
Market exits slow down as insurers return to profitability
In 2024, many homeowners faced challenges finding coverage as insurers tightened underwriting criteria or withdrew from high-risk regions. After years of financial strain, most major carriers achieved profitability by mid-2024, driven by long-overdue rate increases approved by state regulators to offset rising claims costs. Moderating inflation also helped by reducing repair expenses, which includes the cost of building materials. The combined ratio for the P&C insurance industry, a key profitability indicator, stands at 98% year-to-date, showing a 7-percentage point improvement from the previous year.
In response, several carriers began re-entering previously restricted states. By November, major national carriers like Safeco, Travelers, and Nationwide had reopened in multiple states, increasing the average quotes available per person by 60% from the year’s low point in March.* In addition, the Excess and Surplus (E&S) market is stepping up to fill coverage gaps in high-risk areas, offering homeowners alternative options where traditional carriers remain limited.
In their broader strategies, carriers continue to rely on bundling home and auto policies to distribute risk across multiple product lines and sustain profitability. While bundling offers convenience and may yield cost savings for some consumers, it doesn’t always guarantee the best rates. Some homeowners may find that the most competitive rates come from selecting different providers for home and auto insurance. Still, bundling remains a valuable tool for carriers aiming to stabilize coverage offerings nationwide.
Looking forward to 2025, market re-openings and greater coverage options for homeowners will likely continue. However, regulatory hurdles persist in states like California and New Jersey, where Department of Insurance (DOI) restrictions have historically delayed or declined rate adjustments. Now that profitability has returned, state DOIs may grow more cautious about future rate increases, posing potential challenges if costs surge again.
The impacts of climate change are here to stay
The effects of climate change continue to be a significant challenge for the insurance industry. A recent report found that extreme weather events cost the global economy more than $2 trillion in the last decade. Though 2024 had a relatively quiet early hurricane season, events like hurricanes Helene and Milton, which resulted in an estimated $55 billion in losses, are prime examples of the unpredictable nature of climate risks. The rise in wind and hail claims is also an ongoing issue, and has prompted carriers to adopt new approaches to coverage. Some carriers are shifting insurance policies from replacement cost to actual cash value (ACV) for roof coverage, a change designed to reduce their claims expenses. For 2025, the trajectory of severe weather will continue to play a crucial role in determining the market’s stability.
In addition, flood risk is expanding beyond traditional coastal areas, impacting historically low-risk regions, as shown by the recent flooding in western North Carolina from Hurricane Helene. Recent flash floods from major rainstorms have caused significant damage, underscoring that proximity to water is no longer the only predictor of flood risk. In 2025, we anticipate more emphasis on educating homeowners about the need for flood insurance, even in non-coastal areas, and increased attention on the effectiveness of the NFIP and private flood insurance market.
Mortgage industry and broader housing market continue to face affordability challenges
Though the Federal Reserve recently cut interest rates for the first time in four years, mortgage rates remain relatively high, lingering above 6% in November, with little expectation of significant reductions in the near term. While The Mortgage Bankers Association (MBA) projects a 28% rise in mortgage originations for 2025 — a positive sign for housing market activity — affordability challenges persist as elevated mortgage and insurance costs stretch household budgets.
Escalating insurance costs, which are compounding the affordability issue, became a major discussion point for federal and state regulators in 2024, leading to the introduction of multiple bills aimed at addressing these pressures. While these legislative efforts show potential, their impact is uncertain and may depend on the broader economic climate, which may be influenced by policy direction from the incoming presidential administration.
The insurance market’s pressures extend into the mortgage industry as well. Rising premiums have made it harder for borrowers to maintain affordable coverage, affecting debt-to-income ratios and, for some, limiting mortgage qualification. 63% of lenders surveyed by Matic reported that at least one borrower they recently worked with had a problem securing home insurance.* Earlier this year, GSEs Fannie Mae and Freddie Mac, which back most U.S. mortgages, reinforced existing policies mandating that mortgage companies verify insurance policies provide replacement cost coverage for properties. In response to concerns about compliance challenges, Fannie Mae issued a bulletin in May temporarily pausing enforcement of certain requirements while evaluating the implications. Since then, there has been minimal progress reported, highlighting the ongoing need for enhanced tracking systems to ensure both homes and mortgage companies are adequately protected.
In 2025, mortgage lenders will need to stay informed on insurance trends to support their borrowers, especially as insurance costs continue to impact escrow payments. With only 16% of lenders feeling well-informed about the insurance market, there’s a clear need for industry resources to bridge this gap and help loan officers guide clients through rising coverage costs.*
Outlook for 2025
Overall, 2025 could bring a more balanced home insurance market if inflation remains in check and severe weather events are limited. Profitability has returned, and there are signs of market stability, yet risks remain. Severe weather in high-risk states and regulatory constraints will continue to shape the market, potentially driving new premium increases if significant climate events occur.
The year ahead is likely to see a market striving for stabilization, with more carriers re-entering the market and a moderation of rate hikes. However, as always, the market will be highly responsive to weather patterns, regulatory decisions, and broader economic trends.
