Home insurance concerns grow – DSNews

Digital insurance platform Matic has published its annual end-of-year Trends and Forecasts report, analyzing the key trends that have impacted the home insurance landscape in 2023. The findings, which aggregate data from 30 million quote requests, nine million property and external quote machines, reveal record premium increases, significant increases in all other perils (AOP) and wind/hail deductibles, and limited product availability as carriers exited high-risk regions, among other trends. The report also notes that mortgage lenders in particular are facing increased challenges in their lending processes due to the difficult insurance market, as home insurance is a requirement for mortgage insurance.

The report covers findings from a recent Matic survey which showed that 79% of mortgage lenders have experienced an increase in home insurance issues in the past year. Specifically, record high insurance rates impacted borrowers’ mortgage eligibility, with 68% of lenders noting that home insurance caused a borrower’s debt-to-income (DTI) problem.

A lack of insurance options and high premiums also led to significant problems with delayed loan closings, with 58% of lenders citing delays due to the time it took their borrowers to find and secure an appropriate home insurance policy.

“While lenders have previously faced issues with delays in the home insurance process, there are several new contributing factors compounding the problem, including pricing, low availability and longer wait times for customer service as homeowners of homes were forced to switch en masse to new carriers,” said Ben Madick, CEO and co-founder of Matic Insurance. “As lenders already struggled with reduced volume in a difficult housing market in 2023, these home insurance issues further exacerbated their challenges with increased costs and a less efficient closing process.”

Additional findings in the report highlight these issues, showing that policy availability declined significantly in 2023. As carriers faced delays and denials of premium adjustment requests by insurance regulators and were unable to cover increased losses, carriers began to limit or stop entering into new business in high-risk areas. Because of these limitations, many homeowners had severely limited options or had difficulty finding insurance at all. Notably, 2023 saw a 35% drop in available home insurance policies and an all-time high online quote churn rate of 44%.

In states where rate hikes were approved, premiums increased at an unprecedented rate for both new policies and renewals. Homeowners face an average 8.6% increase in premiums for new policies in 2023, compared to an average of 6.4% from 2021 to 2022 and 2.4% from 2019 to 2020. The premium increases for policy renewals are 23.7% or $326 per year. In recent years, renewal rates have been closer to 10-12%, showing a sharp increase for those who chose to stay with the same carrier and policy year after year.

The report also notes a significant increase in home insurance deductibles in 2023. New policies with deductibles between $2,000 and $2,500 have grown nearly 200% since 2019, while those with deductibles as low as $500 have decreased by 67%. This increase is largely the result of carriers imposing higher deductibles to reduce their losses, in addition to recommending increased deductibles to homeowners. For policy renewals, especially those in higher risk areas, some carriers automatically increase deductibles and alert policyholders at the time of renewal. As a result, renewal policies with deductibles between $2,000 and $2,500 increased 63% from 2019, while policies with $500 deductibles decreased 47%.

Additionally, carriers have begun adding a separate, required deductible for wind/hail in areas prone to storm damage. This separate deductible, which is usually 1% of coverage A, is usually higher than the AOP deductible and further helps carriers offset claim losses.

The report shows that these trends are likely to continue into 2024. As climate change continues to pose a significant challenge, carriers may further reduce their business in certain regions most prone to natural disasters such as floods and wildfires . Because historical data is no longer an accurate predictor of future events, continued uncertainty may prompt carriers to frequently reassess their risk exposure.

Continued premium increases and higher deductibles are also expected. However, as inflation slows in 2024, premiums are unlikely to rise at the record high rates seen in 2023. Carriers may also explore alternative routes to increase profitability in 2024, such as expanding into other lines of business or adoption of alternative distribution and marketing channels.

Mortgage lenders may continue to face challenges with DTI insurance, mortgage eligibility and delayed closings in 2024. In addition, interest rates are expected to remain relatively high, with reports suggesting that rates may remain above 6% in 2024

“Today’s high cost of ownership makes it even more important for mortgage lenders to ensure borrowers find ways to offset their increased costs,” Maddick said. “Working with an insurance marketplace like Matic can help borrowers access a wide network of national and regional carriers and compare rates to find a lower-cost option – potentially helping them meet DTI requirements and speed up the loan process .

Click here for more information on Matic’s report.

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