Rugged, rocky coastline on a stormy day at Bass Harbor Lighthouse, Maine, symbolizing how challenging the homeowners insurance market has become.

How to Ride Out the Storm in Homeowners Insurance

May 7, 2024

The homeowners insurance market is a mess, with few signs of improvement anytime soon. But over the longer term, there are reasons for optimism.

By Charlie Wilmerding, Founder & CEO

Let’s start by getting some of the bad news out of the way. Over the past decade, homeowners insurance premiums have risen by 15-25% annually.

What’s driving these increases? A number of factors. Overall inflation; higher costs for construction, repair, and rebuilding; and the skyrocketing cost of compensation for losses caused by an unprecedented level of catastrophes like floods, hurricanes, and wildfires.

This trend is creating ripple effects on the real estate market, consumers’ expendable income, and the economy in general. It’s already gotten to the point where more and more property purchases are now requiring the “ability to purchase reasonably priced insurance” as a condition of closing.

In an effort to keep premiums under control, many homeowners have taken on higher deductibles and stripped out less vital, “bells and whistles” coverage options where they could. But even with that, overall pricing is still far outpacing inflation, raising the possibility that homeowners insurance as we know it may become unsustainable—and even irrelevant to some degree—as insurers continue to be more and more selective in offering coverage in coastal communities, flood zones, and other areas prone to weather-related disasters.

But consumers don’t have to take this sitting down.

Here are some of the tools you can use to keep insurance available and affordable.

Take advantage of the newest and best in property protection.

Advances in technology and materials can substantially improve your risk profile in the eyes of insurance underwriters and qualify for premium credits. For example: upgrading fire and burglary alarm systems; installing water leak detection systems and power generators that automatically turn on even when you’re not at home; and replacing roofs, siding, and windows with materials that are significantly more wind-resistant than older, more traditional materials.

Put your broker’s expertise to work.

You should expect your broker to always know if your current insurance company is still “in market” when it comes to the terms, conditions, and pricing it is offering to insure your property. If it is no longer competitive or falls short in its coverage, make sure your broker actively pursues alternatives from other, financially strong insurers.

(Of course, if Altus Partners is your broker, you’ve come to expect this level of service. We’ve always been a proactive advocate and advisor for our Private Risk and Corporate Risk clients.)

Own multiple properties? Leverage them.

If one of your properties is in a catastrophe-prone region like the coast, and you can afford to either pay off your mortgage or shift your financing to the less risky, non-catastrophe-prone property, you will then have the flexibility to self-insure for exposures such as wind and flood that a lender would otherwise force you to insure against.

Keep a “weather eye” out for innovative funding ideas.

Financial markets are always evolving, and even insurance is no exception.

For example, over the past few years, a new kind of insurance product called a “parametric” has been increasingly used by large corporations to fill coverage gaps in standard insurance policies.

In parametric insurance, the policy sets specific and objective parameters or criteria (e.g., wind speed, earthquake magnitude, rainfall amount, etc.) regardless of the actual damage sustained. When the defined parameter is met or exceeded, the policy pays out a predetermined amount, regardless of the actual loss sustained. Because the payout is based on set parameters and not on an assessment of damage, the process can be quicker and more predictable.

As of now, parametrics are relatively expensive and are available only for corporations. Will they filter down to the personal level? Only time will tell. But it’s important to consider the idea that new AI data-driven tools like parametrics being used to fund risk might transform the future of risk management, especially as catastrophe mapping and predictive modeling get more accurate.

Reasons to believe.

In the end, technology and engineering will continue to have a net positive impact on the risk profile of virtually everything insurable. Will the traditional slow-moving insurance industry be able to keep pace with advances and innovation, will it eventually be relegated to only protecting against certain exposures to loss—or replaced altogether with some new form or forms of risk transfer?

We are cautiously optimistic that newer and better solutions will benefit consumers over time as risk-related data becomes more accessible and insurance and risk management shifts more into focusing on how to better predict and prevent losses instead of waiting for losses to occur and responding to them.