In 2023, personal insurance pricing rose across the nationâin some cases dramatically. Rising risks fueled these increases, leading experts to call this the âhardest market in a generation. The most visible factors are the increased frequency of natural disasters and the billion-dollar wreckage resulting from extreme weather events that occurred in 2023. However, shifts in regional population distribution, rising home replacement costs, and the compounding effects of high inflation are also contributing.
About Our Study
Guaranteed Rate Insurance, a leading provider of homeowners insurance, conducted a detailed market study using proprietary customer data spanning a five-year period. This analysis encompassed a detailed review of all policies placed which included nearly 50,000 home insurance policies in 2023, sourced from customers across all 50 states and insured with over 70 insurance carriers. Our market study provides insights into premium increases, notable shifts in deductibles, state-specific insights, market trends and actionable recommendations for homeowners looking to mitigate rising insurance costs in 2024.
Key Findings
Record Premium Increases
The trend of increasing premiums is expected to persist, with data showing significant percentage hikes. Comparing internal policyholder premium data from January through August of 2022 versus the same period in 2023 yielded a national average premium increase of $273 per policy or 18.85%. Since 2019, on a cumulative basis, homeowners insurance premiums have surged by 55.47%.
There are a variety of factors contributing to these increases. From more frequent and stronger storms doing more damage in 2023 ($92.8 billion in losses were attributed to weather-related losses per the American Property Casualty Insurance Association), shifts in population distribution, particularly areas prone to natural disasters, to increased replacement costs due to inflation, homeowners are seeing premiums go upâsometimes by significant amounts. With losses up considerably, personal lines insurance companiesâ combined loss & expense ratios are projected to close at 109.9% in 2023, according to the Insurance Information Institute. As such, rates will continue to rise.
In addition to carriers increasing rates, we have seen Coverage A limits for Dwelling continuing to increase which in turn causes overall pricing to rise. The average Coverage A limit was $335,630 in 2019. The average Coverage A limit in 2023 was $429,170 which equates to a 28% increase due to higher replacement costs and inflation. In our study, we analyzed all policies including homes that had Coverage A limits up to $15M. In all categories, Coverage A limits were up across the board.
The average percentage of premium increase from 2019 to 2023 is 55.47%, with significant jumps in 2021, 2022, and 2023. Average premiums saw a gradual rise from $1,108 in 2019 to $1,164 in 2020. However, a more pronounced increase occurred over the next three years. The average premium in 2021 was $1,276; in 2022, $1,450; and in 2023, $1,723. This is noteworthy not just due to the amount of the increase, but also because, despite the jump, these national-average increases may still be held at an artificially lower rate than losses would typically dictate since some state insurance departments have been reluctant to approve rate filing increases that reflect actual risks.
Deductibles
In our analysis of deductibles, Guaranteed Rate Insurance has found that customers are opting for higher deductibles at an increasing rate. While $1,000 deductibles remain common, our analysis shows that the disbursement of homeowners choosing this deductible is slowly dropping. In 2021, 62.5% of policyholders carried a $1,000 deductible, which dropped to 60.2% by 2023. Similarly, the $500 deductible, typically held by customers with condominium policies, decreased from 10.7% in 2021 to 8.2% in 2023. This trend is projected to continue into 2024.
The category of applying a percentage deductible (1% – 2%) to wind or hurricane perils has grown by over 200% from 2019 to 2023, while (2% – 5%) deductibles have surged by 3,000%. In 2019, a 5% deductible was uncommon in our portfolio, but it is now represented, albeit at a very low percentage since many customers carry mortgages and mortgage investors typically do not permit a deductible percentage exceeding 5%.
It is noted that in certain states, wind or hurricane deductibles ranging from 2% – 10% are prevalent. It is important to understand that in the event of a wind-related loss, the deductible is calculated as a percentage of the overall Coverage A (Dwelling) property value. It is also important to note that some insurance carriers are no longer offering lower deductibles, which also impacts these distribution statistics.
State Specific Insights
The average premium by state is rising. In Guaranteed Rate Insuranceâs study, the vast majority of states saw significant increases, with some seeing premium increases over 60% in a five-year period. This significant increase is indicative of a broader trend of rising average premiums across states. The variability in premium increases among states can be attributed to a range of factors, including differences in risk. States located along coastlines are susceptible to sea level rise and hurricanes, while western states facing droughts are at a higher risk of wildfires. States with active fault lines are more prone to earthquakes, adding to their risk profile.
Florida, Texas, and California saw particularly steep rate hikes nationally, driven by a combination of factors. An increase in natural disasters, leading to carrier restrictions including an enhanced likelihood of non-renewals and some insurers pulling out of markets altogether, has resulted in limited options for homeowners in these states.
Notably, from 2019 to 2023, Guaranteed Rate Insurance customers in Illinois, New York, Montana, Kansas, Oregon, and Missouri saw premiums increase by an average of 63%. These increases can be attributed in part to severe weather incidents, such as hail and windstorms, alongside other factors that have driven up insurance costs within these states.
Another reason that rates vary is that states are responsible for the regulation of insurance products sold within their borders. Most notably for this analysis, state regulators review and either approve or deny rate increases requested by insurers. When a stateâs insurance regulators deny a rate increase request, it can have a long-term effect on carrier offerings, position in the market, and even solvency.
Market Trends
Availability of Insurance
One of the most evident market trends in 2023, which will continue into 2024, is continued volatility, particularly as it relates to the presence of top in-state carriers and the availability of insurance. In some areas, top carriers are no longer offering new policies. These exits, however, have not caused âvacuumsâ as there is evidence of new carriers, especially surplus lines, in select states entering the market due to the ability to offer policies at higher premiums.
In the upcoming months, we expect further limitations on the availability of obtaining insurance from certain carriers that have had significant losses and/or lack of the ability to obtain rate increases As a result, where available, we have seen a notable increase in last resort carriers, including all state run and FAIR plans across many states, and a surge in the adoption of these plans.
Flood Coverage
Private flood insurance is growing; our data reflects a 163% growth in the purchase of private flood insurance year-over-year both in mandatory (high risk) and (low and moderate) flood risk zones. As the National Flood Insurance Program (NFIP), which is part of FEMA, has moved towards improved modeling, premium increases at the government-run program have followed. With those premiums now reflecting actual risk, private insurers see the field as far more competitive than it was in the past.
Homeowners are wise to consider flood even in places not traditionally considered to be in flood zones. We are increasingly aware that flooding can happen anywhere, and some mortgage lenders are requiring flood insurance even in areas that are not federally designated as high risk.
Flooding is one of the most common natural disasters a homeowner is likely to face, and itâs excluded from a standard homeowners insurance policy. An increasing number of private providers of flood insurance makes this important additional coverage more accessible and competitively priced to homeowners â many of whom do not yet realize how critical this coverage is.
Ten Strategic Recommendations for Insurance Customers
Looking ahead to the rest of 2024, the trends that have shaped the insurance market will continue to pose challenges for homeowners and carriers alike. When it comes to navigating the market as an insurance customer, it is more important than ever to have a robust understanding of the continually evolving insurance landscape, and proactive and detailed approaches are key.
Here are some strategies to help customers avoid high premiums and at the same time get great coverage:
1. Compare Insurance Rates
Use an independent insurance agent to compare insurance rates across multiple carriers. This process is critical and can reveal potential savings, as each carrier uses proprietary formulas and algorithms to determine rates. Most independent agents, such as Guaranteed Rate Insurance, leverage financial technology (“fintech”) tools to compare insurance rates that can lead to cost efficiencies and ensure that customers secure the best coverage available. Most importantly, the independent agent possesses a deep knowledge of the industry and local market expertise.
2. Increase Deductibles
By increasing deductibles, customers agree to shoulder more of the replacement costs following a claim, typically resulting in a premium decrease. For those seeking to reduce their bill, this approach is much safer than allowing coverage to lapse or removing crucial coverage or limits from a policy to lower premiums. Even if an individual’s insurer has automatically raised the deductible at renewal, customers may still save money on their premium by further increasing their deductible. By allowing for inflation-based budgeting, customers can ensure they are prepared for potential losses and have a clear understanding of their financial responsibilities in the event of a claim.
3. Bundle Home & Auto
Depending on the state, many insurance carriers offer premium discounts of up to 5% – 20% if customers purchase both home and auto through the same carrier. Bundling is a good strategy to reduce cost, but in 2023, due to many carriers restricting new homeownerâs policies, we saw that bundling opportunities started to decline compared to prior years. As an example, we have seen a considerable pullback in bundling in states such as Florida, California, Texas, New York and New Jersey. Work with your independent agent who will be able to offer bundling depending on the carrier and state.
4. Ensure Proper Coverage Limits
Escalating inflation and trade expenses have led to instances where homeowners facing a loss realize their coverage limits are inadequate for rebuilding purposes. Customers are advised to thoroughly review existing policies and talk with an independent insurance agent to confirm that the limits are adequate for reconstruction in the respective area. Additionally, review separate exposures such as valuable articles, jewelry, and even umbrella liability. Do you have the correct limits? Instead of covering these exposures under the homeownerâs policy, customers may want to purchase separate policies as a strategic move to lower premiums. The monoline market in this area is robust and finding the right standalone option can help control how claims impact, or don’t impact, the cost of home insurance.
5. Assess Roof Condition
Another strategic consideration for homeowners looking to lower their home insurance premiums is to pay close attention to the condition of their roof. Insurance companies often take into account the age and condition of a home’s roof when determining premiums, as a well-maintained roof can help reduce the risk of damage and potential claims. Some insurance companies are also restricting coverage and not providing insurance coverage for roofs that are older than 10 years or in poor condition. We have seen many carriers send policy cancellation notices after a roof home inspection.
Regular inspections and maintenance of the roof, including repairs or replacements as needed, can not only enhance the safety and longevity of the home but also demonstrate to insurers that the property is well-maintained and poses a lower risk. Additionally, homeowners may consider investing in impact-resistant roofing materials, which can help mitigate damage from hail, wind, and other weather-related events, potentially leading to lower insurance premiums. By proactively addressing roofing considerations and investing in preventative measures, homeowners can not only protect their property but also potentially reduce their insurance costs over time.
In older homes, other aspects such as electrical systems, HVAC, plumbing, and more can impact the availability of insurance options. Ensuring that these systems are up-to-date and well-maintained can provide homeowners with more choices in the insurance market. Upgrading these systems to meet modern standards can not only improve the safety and efficiency of the home but also make it more attractive to insurance providers, potentially resulting in better coverage options and lower premiums.
6. Reduce Risk through Smart Technology
Incorporating advanced âsmart technology,â such as home security and monitoring systems can proactively control loss and detect minor problems before they lead to significant damages that result in insurance claims. Smart devices, such as leak detectors, temperature sensors, security cameras, electricity monitoring apps and window alarms offer preemptive measures to prevent losses, ultimately leading to a reduction in claims. Most importantly, by having these devices, most insurance companies will provide credits and reduce your annual premium.
7. Consider Purchasing Private Flood Insurance
Record thunderstorm flood-related losses occurred in 2023, especially in areas that were not considered âhigh riskâ. Again, flood is excluded from all standard homeownerâs policies. The demand for flood insurance has been increasing, and there now is a robust private flood market offered by multiple insurance carriers that competes with NFIP and offers very competitive pricing and enhanced coverages such as replacement coverage (vs. Actual Cash Value), coverage for contents in basements, pools and unattached structures being available.
8. Proactive Property Protection
Further loss prevention measures include assessing the exterior of a residential property and opting for disaster-resistant materials during a renovation or upgrade. For homeowners residing in regions prone to wildfires, it is recommended to create a clear perimeter around the building and roof by eliminating any combustible materials such as plants, debris, and wood. Additionally, identifying the prevalent local risksâranging from coastal flooding to wildfires, earthquakes, and hurricanesâis an important factor in determining the necessary steps to mitigate these risks effectively. To address potential risks from flooding, in addition to securing a flood insurance policy as suggested earlier, homeowners can elevate mechanical and electrical systems and equipment such as washers and dryers, install sump pumps and backflow valves, and use water-resistant materials anywhere below the base flood elevation (BFE). Preventing wind damage can include measures such as the installation of hurricane shutters and reinforcing doors and roofs before inclement weather strikes.
9. Monitor Credit Rating
Credit score can play a crucial role in determining homeowners insurance rates. Insurance companies utilize this score to calculate insurance rates, which assesses a customerâs risk to the insurer. A higher insurance score often translates to lower insurance premiums, while a lower score typically results in a higher cost. It is important to note that California, Hawaii, Massachusetts, and Michigan do not use credit scores to determine insurance rates. Additionally, other states have restrictions on how companies can utilize credit scores, such as only for determining new policy rates and not for renewals. In some states, credit scores may impact homeowners insurance policies but not auto insurance policies. For areas where credit scores do influence insurance rates, maintaining a favorable credit score through timely payments and prudent credit management is essential. A strong credit profile can often qualify homeowners for more competitive insurance rates, enhancing their financial security and providing peace of mind.
10. Estimate Insurance Costs Prior to Purchase
If purchasing a new home, when calculating the estimated cost of homeowners insurance for a potential property, talk to an independent insurance agent as it is essential to consider not only the standard coverage provided by a typical policy but also the additional ancillary coverages, such as earthquake, flood, sewer backup, auto, and umbrella insurance, that may be necessary for comprehensive protection. These additional coverages can raise the overall cost of homeowners insurance. They should be carefully evaluated to ensure that the policy provides adequate protection against a wide range of risks and liabilities.
Conclusion
In conclusion, the findings from Guaranteed Rate Insurance’s data analysis and study underscore the prevalent trend of escalating premium costs within the homeowners insurance market. Delving deeper into the data reveals actionable strategies that homeowners can adopt to alleviate the impact of these cost escalations, with a prominent recommendation being the proactive adjustment of deductibles, ensuring the correct replacement cost and review of other perils that are normally excluded from homeowners policies such as flood and even earthquake coverage.
Geographical location emerges as a key factor in the degree of rate increases experienced by homeowners. However, it is necessary to recognize that premium costs are influenced by a number of factors beyond the risks posed by natural disasters.
The effects of inflation further compound the challenge, as despite seeing a recent improvement in supply chain availability and inflation rates, the expenses associated with rebuilding have surged significantly compared to just a few years ago.
With the ever-evolving landscape of the homeowners insurance market, informed decision-making and strategic adjustments can empower homeowners to navigate the complexities of rising costs and effectively safeguard their properties and financial well-being.
Note on Methodology
The analysis prepared by Guaranteed Rate Insurance is based on proprietary customer data collected from 2019 through 2023. The information presented in this document is derived from internal sources and external data, including data on national catastrophes and related losses from the Insurance Information Institute. While every effort has been made to ensure the accuracy and reliability of the data, Guaranteed Rate Insurance cannot guarantee the completeness or timeliness of the information. Readers are advised to use the insights provided in this paper for informational purposes only and to conduct their own research and analysis before making any business decisions.
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate Insurance. Guaranteed Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.