Navigating Rough Waters: How the Tight Insurance Market is Changing the Home-Buying Game
Jack Clemens
In the world of homeowners insurance, a transformation is underway, and its impacts are weighing most heavily on prospective homebuyers looking for their slice of the American dream.
Whether you’re a buyer embarking on this journey for the first time or an experienced real estate or mortgage professional guiding others on this path, there’s no sugarcoating it —the insurance market is in the throes of significant change, and the way forward may not be easy.
Despite the uncertainty, the good news is you don't have to go it alone. Working with industry experts who know how to proactively navigate the shifting market can help you or your clients achieve their home-buying goals with confidence and clarity.
In addition, knowing what's going on in the industry will help buyers of all types have realistic expectations and make informed decisions for their futures. My hope is that this article will provide the information you or your clients need to buy a home in a tight insurance market.
With this in mind, let's examine market conditions and then dive into the “choppy waters” you or your clients might encounter in 2023 and beyond.
What is a tight insurance market?
A tight insurance market is a term used in the insurance industry to describe a period marked by soaring premiums, limited availability, and stringent underwriting standards. In such a market, consumers may pay higher premiums for various insurance policies, including auto and home insurance.
Businesses may also have to adapt by raising prices or cutting costs to offset their increased insurance expenses. Unfortunately, the premium hikes witnessed this year are not isolated incidents but a widespread concern within the industry.
What factors contribute to a tight insurance market?
While there are many contributors, severe weather, lingering inflation, and higher building materials costs are primarily to blame for the current market conditions. Even if you don’t live in a region directly impacted by hurricanes or wildfires, your premiums may rise as insurers try to compensate for catastrophic events.
As of September 11, 2023, the U.S. had experienced 23 confirmed weather and climate disaster events
, each causing losses exceeding $1 billion. These events include flooding, severe storms, tropical cyclones, wildfires, and winter storms. Here are some examples for added perspective:
Hurricane Idalia (August 2023) - estimated $20 billion
in damage
Maui wildfires (August 2023) - estimated $4-6 billion
in damage
Texas hail event (May 2023) - estimated $1 billion
in damage
Carriers simply can’t keep up, forcing them to pass on rising reinsurance costs to consumers or stop offering services altogether—particularly in coastal states like Louisiana, Florida, and California. As a result, consumers everywhere are shouldering the burden of those hardest hit by severe weather and subsequent carrier departures.
What does the tight market mean for prospective homeowners?
It’s no surprise that, given these conditions, a tight market impacts home buyers, making the process more challenging and expensive. Here are some of the “choppy waters:”
Increased Premiums
Gone are the days when homeowners insurance was an afterthought in the buying process. With homeowners insurance skyrocketing 19.1% between 2018 and 2023 across the 50 states and D.C., buyers and their real estate professionals must have the insurance conversation early and often as rising rates impact purchasing power and monthly mortgage payments.
In 2022 alone, North Carolinians experienced the most significant increase in homeowners insurance premiums nationwide at 12.4%. While NC residents can attribute a portion of the 2022 rate hike to a new policy that took effect on June 1, 2022, the overall increase is significant and squeezing the household budgets of already-inflation-weary families.
According to experts, homeowners insurance premiums may increase nationwide by 9% this year. Closer to home, rates could jump as much 19.6% in 2023 and 19.2% in 2024 but these projections are usually negotiated down before taking effect. Keep in mind, however, rates are rising. One NC carrier raised rates earlier this month - and plans to increase them again on December 23, 2023.
Reduced Availability
As mentioned above, carriers may withdraw from certain markets altogether during tight insurance cycles, making it difficult for prospective buyers to find any coverage at all. States like Florida have been forced to dive head-first into the industry by funding their own state-backed programs. But even those programs aren’t immune from steep premium increases.
Limited Choice of Insurers and Coverage Options
A tight insurance market may limit the number of insurers willing to provide coverage in a particular area or for certain types of homes, drastically reducing the ability of home buyers to shop around for the best rates and coverage options.
Moreover, insurers willing to offer coverage may become more selective in the types of properties they insure. One major insurance company in NC currently refuses to write policies for homes with roofs over four years old. Another major carrier has a ten-year age limit. In the past, twenty years was the norm.
Higher Deductibles
Insurers may offer coverage but attach higher deductibles as a way to manage risk. Right now in North Carolina, one carrier is willing to writing new homeowners insurance policies but requires a minimum $5000 deductible.
This means buyers may need to accept higher out-of-pocket costs if they file a claim or have robust emergency funds or savings accounts to cover less than catastrophic losses to their property.
Stricter Underwriting Requirements
Before providing coverage, insurers may also impose stricter underwriting requirements for home inspections, upgrades, or repairs. Meeting these requirements can add time and expense to the costly home-buying process.
Impact on Mortgage Approval
Mortgage lenders often require borrowers to have homeowners' insurance in place before closing on a home purchase. If insurance is tight to come by or expensive, it can delay the process or jeopardize the mortgage approval.
4 Tips for Navigating a Tight Property Insurance Market as a Prospective Home Buyer
If you hope to buy a home in the coming weeks or months, here are four tips to consider:
- Begin shopping for insurance early in the home-buying process to ensure ample time to find suitable coverage.
- Collaborate with an experienced insurance agent who can guide you through the market complexities and help you find the best available options.
- Consider bundling your homeowners' insurance with other policies like auto insurance to secure discounts.
- Once you move in, take steps to make your home more insurable, such as improving safety features or addressing maintenance issues that may raise concerns for insurers.
Over the years, we've proudly assisted thousands of North Carolinians in securing their homeowners insurance, and we’d love to extend the same support to you.
Please don't hesitate to reach out if you wish to talk further. Whether you prefer to send us an email or give us a call, we’re here to help you navigate the insurance market and reach your goals of homeownership.
