Report: Home Insurance Premiums Continue To Surge As Regulators Navigate Impact of Volatile Market
Reading time • 9 minutes
By Matic
The home insurance market has experienced major challenges in 2024, with rising premiums and increasing carrier exits and restrictions continuing to impact homeowners, mortgage entities, and the housing market as a whole. Read on to explore how these trends emerged, examine the latest data, gain insights on how regulators and related industries are responding, and understand where the market could be headed in the near future.
Climate change: a major driver in the insurance crisis
Climate change has been a key factor contributing to the current crisis in the home insurance market. The frequency and severity of catastrophic events, such as hurricanes, wildfires, and floods, have increased, leading to higher claims costs for insurers. It’s reported that 2023 saw 28 billion-dollar weather and climate disasters in the U.S., surpassing the previous record set in 2020. The growing concentration of populations in high-risk areas also exacerbates these challenges. It’s estimated that over 79% of US population growth happened in coastal states from 2000-2016, putting more strain on insurance companies.
Insurers are finding it increasingly difficult to manage these risks, resulting in higher premiums and reduced availability of coverage. The loss ratio for the industry has also been impacted, with insurers grappling with rate adequacy in the face of growing claims.
Rising premiums, carrier exits, and challenges with coverage continue to persist
In 2023, the home insurance market saw a surge in carrier restrictions and withdrawals from certain markets. As climate change led to more natural disasters, and inflation drove up building costs, insurance carriers struggled to remain profitable. To cover mounting losses, carriers attempted to raise rates, but were often met with denials and delays from the state Department of Insurance (DOI), which must approve any premium increases. Faced with these regulatory challenges and the inability to cover costs, many carriers began to limit or stop writing new policies, especially in high-risk areas. This tightening of underwriting guidelines and reduction in business left many homeowners struggling to secure coverage.
This trend has had a lasting impact on homeowners in 2024. Recent research shows that approximately 6 million homeowners lack insurance, putting them at extreme financial risk. One contributing factor could be a decline in policy options. The average number of insurance quotes available per person across the U.S. fell to 1.07 in June 2024, a 27% decrease since June 2023. However, since hitting a low point of 0.77 quotes per person in March 2024, this number has gradually increased, suggesting that the market may be starting to stabilize (more on this later).
This issue is even more prominent in high-risk areas and in those with challenging regulatory environments. For instance, California faces risks from wildfires, flooding, and droughts along with significant regulatory challenges, making it difficult for insurers to cover the cost of claims. In response, major companies like State Farm, Allstate, and several others left the state in 2023 — with additional insurers like The Hartford following suit in 2024.
Even homeowners with insurance could find themselves in an uncertain financial situation if their coverage isn’t up to date. It’s estimated that approximately two out of three homes in America are underinsured, primarily due to homeowners not regularly updating their policies to reflect escalating reconstruction costs or home improvements. Recent data underscores this issue, indicating that coverage amounts aren’t increasing at the same rate as premiums.
Coverage A, or dwelling coverage, experienced sharp increases from 2021 to 2022 due to rising costs of building materials and labor shortages. However, these increases began to slow in 2023 and have continued to decline into 2024. To illustrate, the average homeowner who purchased an insurance policy in 2021 had a premium of $1,281 and a Coverage A amount of $319,092. When their policy renewed in 2022, their premium rose by $253 and their Coverage A increased by $33,500.* In contrast, at their 2024 policy renewal, their premium increased by $445, while their Coverage A only rose by $13,700. The widening gap between the growth rates of premiums and Coverage A suggests that coverage amounts aren’t keeping pace with rising premiums, resulting in less value for policyholders.
In cases where carriers did gain regulatory approval, premiums continued to increase at an unprecedented rate. According to Matic’s data, premiums for new policies surged by 17.4% in the first half of 2024 compared to 11.6% in 2023 and 5.9% in 2022. Renewal premiums have risen even more dramatically; the average homeowner who bought a policy in 2021 is now paying a staggering 69% or $865 more in 2024 than when they initially purchased their policy. For this person, their policy that renewed in the first half of 2024 saw their rate increase more than 25% since just last year.*
Regulators start to pay attention — and take action
While these issues have been prominent for some time, the escalation of home insurance challenges has become a major topic of discussion with federal and state regulators in 2024. As an example, Representative Adam Schiff introduced the Incorporating National Support for Unprecedented Risks and Emergencies (INSURE) Act earlier this year, which aims to stabilize the home insurance market by establishing a federal catastrophic reinsurance program. This program seeks to cap insurers’ liabilities during catastrophic events, ensuring that vulnerable communities are not excluded from coverage. In addition, a House committee approved the Insurance Data Protection Act in April, aiming to limit the Federal Insurance Office’s (FIO) power by eliminating its subpoena authority and requiring coordination with state regulators for data collection. The bill seeks to preserve state control over insurance regulation. Opponents of the bill argue that the FIO’s subpoena power is essential for monitoring insurance availability and systemic risks, especially regarding climate change impacts. These legislative efforts highlight a growing recognition of the widespread impact of volatile conditions in the insurance market
Mortgage industry response and impact
GSEs Fannie Mae and Freddie Mac, which guarantee most US mortgages, have also focused on the impacts of climate change and the insurance market on the mortgage and housing landscape at large. Fannie Mae, for instance, recently established a dedicated Climate Impact team to manage and mitigate climate risk. Additionally, recent announcements from these agencies have emphasized their existing policies on property coverage requirements for mortgages, signaling a shift towards stricter monitoring and enforcement to ensure homes are adequately protected. Specifically, the announcements reinforced the requirement for mortgage companies to consistently verify that the insurance policy provides for replacement cost coverage. However, after hearing concerns that mortgage entities would struggle to comply with these requirements, Fannie Mae issued a new bulletin in May, indicating a temporary pause in enforcing some of these rules as they further investigate the obstacles. These announcements have uncovered a lack of robust processes and procedures for mortgage companies to monitor insurance coverage, and improved tracking systems are needed to ensure homes and mortgage companies are sufficiently protected in the event of a loss.
For mortgage lenders specifically, the rising cost of homeowners insurance has significant implications. 63% of lenders reported that at least one borrower they recently worked with had a problem securing home insurance.* Common issues include debt-to-income ratios becoming too high once the cost of insurance was factored in and borrowers needing to lower the mortgage they could afford. Despite these challenges, only 16% of lenders feel very knowledgeable about the current insurance landscape, with 66% expressing a desire to learn more to better assist their customers. Given that the cost of insurance affects a borrower’s total escrow payment, it’s essential for mortgage enterprises to stay informed about the current insurance landscape and provide their loan officers with tools and resources to address insurance issues.
Looking to the future: signs of improvement
Despite the aforementioned challenges, there are indicators that the market may turn around soon. It’s projected that the P&C insurance industry will see combined ratios, which are an indicator of profitability, drop to 98.5% for both 2024 and 2025 — a major improvement from the 102% ratio reported in 2023. Specifically, the home insurance combined ratio landed at a 15 percentage point improvement in the first quarter of 2024. These results signal that the substantial rate increases seen in 2023 are finally beginning to offset insurers’ losses. In addition, with inflation stabilizing in 2024 after reaching record highs in recent years, construction costs do show signs of moderating. For example, the price of lumber, which is a key building material, has dropped by 18.9% since last year. Matic data also shows that Coverage A for new policies increased by only 1.5% in the first half of 2024, compared to 5.5% in 2023 and nearly 10% in 2022. While this does raise concerns that coverage is not keeping pace with rising premiums, slower Coverage A growth may also be influenced by declining home building and construction costs.
Additionally, while there has been a steep drop in quotes available per person since last year, it has been slowly increasing in recent months. After reaching a low of 0.77 quotes per person in March, availability slightly recovered in the following months, landing at 0.82 quotes per person in April and 1.07 in June. This steady increase, while small, could be another indicator of market improvement.
Moreover, government interventions like the INSURE Act and the introduction of new market products by Managing General Agents (MGAs) and non-admitted insurers are positive signs. These efforts aim to provide homeowners with more options and return to a more affordable insurance market. Coordinated efforts from insurers, regulators, and the mortgage industry could offer a path towards stabilization and improvement in the near future.
