It is no secret that property insurance rates once again surged in 2024 and these trends are expected to continue in 2025. The industry represents the first place where millions of Americans are truly feeling the impacts of climate change directly on their bank accounts.
Beginning with a dedicated episode—The Possible Collapse of the U.S. Home Insurance System— of its podcast The Daily, the New York Times and other media outlets devoted a lot of attention to the impact of climate change on insurance premiums, an issue that is central to many insurers’ decisions to non-renew thousands of policies or pull out of catastrophe-prone states all together over the past 24 months. From this perspective, the industry is facing an existential crisis. On the other hand, emerging technologies such as automatic water shutoff valves, aerial imagery roof examinations and water quality assessment capabilities grant insurers a higher degree of risk mitigation capabilities for properties on their books in addition to a unique opportunity to engage with policyholders on proactive loss prevention. These two diametrically opposite trends created a fascinating backdrop for the 2024 Property Insurance Report National Conference hosted by Risk Information in November.
Here are my key takeaways from three jam-packed days in beautiful Dana Point, California:
Policyholders’ response to rising rates has potential to create serious frustration at claims time
Corporate Insight’s research consistently confirms that consumers lack a well-rounded understanding of their insurance coverage. Specifically, past respondents in User Experience studies demonstrated minimal savvy regarding their coverages and deductible settings. When asked to review their policy with the aim of saving money, some actually lowered their deductible, thus raising their premiums. This past summer, a survey from Trusted Choice reaffirmed this. The survey found that while 86% of respondents claimed a strong understanding of their policies, many were incorrect or unsure about coverage specifics when tested on their knowledge.
- Close to three-quarters (70%) were unaware that a standard homeowners policy does not cover materials or fixtures to be installed during renovations
- Many (56%) were unaware that a standard homeowners policy does not cover flood damage
- Close to half (44%) incorrectly believe that personal items stolen from their car are covered by a standard auto insurance policy, though such theft is typically covered by a standard home or renters insurance policy
In their annual 20 Trends presentation, conference co-chairs Brian and Patrick Sullivan noted that as nearly all property policyholders nationwide face rate hikes, a majority take one or more of three common actions: shop around for a new policy, raise their deductibles or reduce/drop some coverages. Obviously, each of these behaviors nets the same result—less coverage for the policyholder. The Sullivans further posited the question “Do policyholders understand the potential ramifications of these actions?” and hypothesized that they do not. Coupled with inflation and the rising costs of building materials, an underinsured property can have drastic consequences for a consumer who suffers a loss. When a claim is filed and the claimant’s policy does not offer enough coverage, the policyholder will blame their insurer regardless of any other contextual factors.
George Hosfield of LexisNexis also spoke about the insurance knowledge gap, surfacing findings from a recent LexisNexis study that found that 17% of properties in the company’s recent study have a Coverage A value well below the median of nearby properties, implying that they are significantly underinsured. To explore how this could unfold, Hosfield cited a survey of homeowners in which 70% of respondents reported that rely on their carrier/agent to make sure they have the right coverage and hypothesized that customers who switch prioritize price over coverage. Other survey findings from LexisNexis include:
- 89% of respondents feel they have enough coverage to repair or rebuild their home
- 82% of respondents feel responsible for providing information to ensure proper coverage
- 72% of respondents are willing to pay higher premiums to be sure they are fully covered
- 70% of respondents are interested in better understanding risks to their home
But, despite these promising numbers, only 26% of respondents reported that they are very familiar with their dwelling coverage and limits. Moving into 2025, insurers need to step up their communications to policyholders regarding replacement cost and Coverage A levels. Carriers also need to provide policyholders more avenues to ensure their property characteristics are accurate. CI’s August P&C Insurance Monitor report found that only four insurers in our coverage group—Hippo, Liberty Mutual, PURE and USAA—allow policyholders to update their home characteristics online.
Moving into 2025, insurers need to step up their communications to policyholders regarding replacement cost and Coverage A levels. Carriers also need to provide policyholders more avenues to ensure their property characteristics are accurate.
Insurers need to communicate better to avoid transparency issues when it comes to aerial imagery
In an environment of general inflation and rising insurance premiums specifically, insurance carriers are going to be under a microscope. Consumers feeling pressure from numerous angles are going to jump on any opportunity to cry foul. This mindset leads to situations like the one that unfolded in the auto insurance industry earlier in 2024, when a NYT article—How G.M. Tricked Millions of Drivers into Being Spied On—created a firestorm of bad press for GM and the industry as a whole. Now, property insurers are facing questions about their use of aerial imagery, leading to articles with titles like those below:
- Insurers are Using Satellite Images to Inspect Homes in California – and Dropping Policies in the Process
- A Florida Homeowner Was Dropped by His Insurers Over Drone Images of His Roof – Here is How to Keep Your Policy Intact
- A Home Insurance Drone Spied on My House – Then My Premium Was Hiked: Could Your Policy Be At Risk Too?
In a thought-provoking roundtable moderated by Patrick Sullivan, David Bairstow of EagleView, David Tobias of Nearmap and Glen Brooks of Vexcel discussed how they as aerial imagery vendors can work with both regulators and insurers to set up transparency best practices to better serve both homeowners and insurers. All agreed that more transparency is needed, and that clear messaging needs to pass all the way through to the end user, the policyholder, so they possess an adequate understanding of how their carrier is leveraging aerial imagery. One key point was the need to provide customers a remedy opportunity before a carrier non-renews based an aerial image.
Carriers need to invest political capital and contribute to developing stronger building codes
In the United States, there are no national building codes. Instead, codes are enacted and enforced at the state and local levels. Codes update every three years and the process is political, requiring consensus from multiple parties including local government, insurance carriers and building/construction trade groups. Ian Giammanco of The Insurance Institute for Business and Home Safety (IBHS) delivered a passionate call to action to attendees to get more involved in developing stronger building codes to net more resilient homes, noting that as insurers, having more homes to insure is better for everyone. Giammanco outlined how strong codes coupled with systematic enforcement has been successful in Florida, which of course recently endured multiple hurricanes. He also explained how IBHS is currently involved in the code creation process but again emphasized the need for support from insurance carriers to combat hesitancy to commit from local municipalities and builders, who are often concerned that stricter codes will adversely impact the real estate market—a fear that has not come to fruition in states that have put stronger codes into effect. Giammanco and IBHS have a long-term goal of building codes that incentivize the construction of resilient homes through:
- Uniform code adoption
- Uniform code enforcement
- Uniform education, training and licensure processes
In their 20 Trends presentation, the Sullivans echoed Giammanco’s plea, adding that they feel it is the best way for a carrier to impact the nation’s risk profile. They also urged carriers in attendance to boost their involvement in this process since local municipalities have a conflict of interest as their primary goal is to grow the tax base, not mitigate risk.
Investing political capital in stronger building codes is the best way for insurers to impact the nation’s risk profile – Brian and Patrick Sullivan
Check out our Insights section for more on the latest trends and conference summaries from P&C insurance and across the financial services industry.
Justin Suter is the director of thought leadership at Corporate Insight.