There’s a lot going on in the world, and keeping up with insurance market conditions might not be high on your list of priorities. However, a hard insurance market can directly impact your premiums and coverage. Knowing a little about what’s happening can help homeowners prepare for their next home insurance renewal.
What Is a Hard Market?
Just as real estate experiences cycles of buyer’s markets and seller’s markets, the insurance industry also goes through cycles. These cycles are called hard markets and soft markets.
The International Risk Management Institute (IRMI) defines a hard market as an upswing in the insurance market cycle characterized by rising premiums, more restricted coverage, and reduced capacity. The opposite is a soft market, characterized by low rates and high limits.
IRMI says that hard markets can be caused by many different factors, including increased losses, poor investment returns, and regulatory intervention.
Current Market Conditions and the Impact on Insurance Coverage
The property insurance market shows signs of hardening. There are several likely causes at play, notably inflation and natural disasters.
- High inflation rates have impacted insurers just as they’ve impacted consumers. Claims cost more because it costs more to rebuild property or replace items, and this drives up losses for insurers.
- Major natural disasters have become more common and more costly. NOAA keeps track of weather and climate disaster events with losses of at least $1 billion, adjusted for inflation. The number of events has surged in recent years. Between 2000 and 2009, there were 6.7 billion-dollar events each year, with average total losses of $60 billion per year. Between 2018 and 2022, the average number of billion-dollar events shot up to 18 per year, and total average losses rose to $123.9 billion per year.
Although many homeowners are frustrated with rising insurance costs, the insurance industry is reporting an underwriting loss, which means that the funds collected from premiums are not sufficient to cover claims and administrative costs. According to the Insurance Information Institute, the property and casualty insurance industry reported an underwriting loss in 2022 and is expected to do so again in 2023.
How a Hard Market Impacts Home Insurance Availability and Rates
From a homeowner’s perspective, a hard insurance market is not desirable.
You will likely pay more for the same coverage.
You might even pay more for less coverage if your premiums increase while limits decrease. If you’ve had claims, you can expect even steeper premium increases.
This is happening now. In fact, rates have been rising for a while now. According to MarketScout, homeowners insurance rates were up 4.4% in the second quarter of 2023 and 5% in the first quarter.
Some homeowners have seen much larger increases, especially in regions with severe fire and storm exposures. ABC Action News says more than one million Florida homeowners face double-digit insurance premium increases. Texas homeowners have also seen particularly steep premium hikes, according to Axios Dallas.
Your coverage options may be reduced.
Insurers may not be willing to write the terms and limits you want. It’s also possible that your homeowners insurance company will decide not to renew your policy, especially if you’ve had claims or your property is considered to be high risk for another reason, such as extreme hurricane or wildlife risk in your area. Other carriers might refuse to offer coverage, and some may exit the market entirely.
This is already happening in the current hard market, especially in troubled states like Florida and California. NBC News says Farmers Insurance stopped writing homeowners insurance policies in Florida after six carriers became insolvent in 2022. Meanwhile, State Farm and Allstate have stopped writing new policies in California. These exits leave homeowners with fewer and fewer options.
You may have to deal with stricter underwriting.
Insurers tend to be very strict about their requirements during a hard market. Applications need to be completed thoroughly, and insurers may look for reasons to decline coverage.
Expect added scrutiny when you apply for coverage and throughout the policy year. If insurers provide coverage and then later discover that your property is riskier than they thought, you could lose coverage. According to ABC 7 Eyewitness News, a California man says he lost coverage to nonrenewal after aerial images of his yard revealed clutter, while another policyholder lost coverage when the insurer discovered they had drained their swimming pool to save water during a drought.
Navigating a Hard Property Insurance Market
Home insurance policies typically renew every year. These renewals are often unremarkable. However, due to current insurance market conditions, your next renewal could be more challenging. Here are some tips to help you prepare:
- Budget for rate increases. Insurance rates are going up, so there is a good chance your home insurance policy will cost more. Plan for an increase.
- Be realistic about your situation. If you’ve had frequent or severe claims, your rates may go up significantly, or your insurer may decide not to renew your policy. Even if you haven’t had any claims, if you live in an area with extreme natural catastrophe risk, you may see steep premium increases or even non-renewal.
- Review your terms. The insurance carrier may add new restrictions or requirements, so read your policy and ask about any changes.
- Reduce your risks. You can make your property more attractive to insurers – and reduce the chance of property damage – by taking steps to reduce your risks. For example, FEMA’s tips for protecting your property from wildlife include creating a defensible area around your home that’s free of flammable vegetation and combustibles.
- Ask your agent to help you shop around. Your insurance agent may be able to find a better deal with a different insurer, but you won’t know unless you allow your agent time to explore your coverage options.
- Consider adjusting your coverage. If your premiums are too high, you may be able to lower your premiums by raising your deductible.
- Work with an independent agent like Watkins Insurance Group. The current insurance market isn’t easy. Independent agents work with multiple insurers (not just one brand of insurance), so they are in a better position to help you explore the options and identify solutions. Expert guidance is essential in this hard market.