Preparing for the 2024 Homeowners Insurance Market
Homeowners must take appropriate steps to financially protect their properties, families and investments. While this is true every year, it may be especially important in the difficult insurance market predicted for 2024.
Home insurance remains one of the most frequently purchased types of coverage across the United States. However, for many people, current hard market conditions have made acquiring an adequate policy more expensive and complicated. Indeed, major insurance carriers have already limited or ceased offering certain types of insurance in some parts of the country—areas that were eligible for policies only a few years ago.
In part, such dramatic market shifts were precipitated by catastrophic natural disasters and the high frequency of claims in 2023. Many insurance carriers, including reinsurance companies, have struggled to maintain profits in recent years, leading to increased premiums and even withdrawals from certain markets, such as Florida and California. In addition, inflation and global supply chain issues continue to impact the economy going into 2024 and, therefore, the insurance industry at large.
Critically, the ever-changing home insurance market landscape can be intimidating, but understanding how its factors can affect homeowners is crucial for accurately assessing and addressing coverage needs. Failing to carry an adequate policy could leave even the most responsible and diligent homeowners without the financial means to repair or rebuild their homes or otherwise manage the aftermath of unexpected and challenging times.
While the hard home insurance market is expected to continue in 2024, homeowners may be able to optimize their investments, maintain optimal coverage and limit relative price increases by fully understanding the trends and patterns expected to impact future conditions.
Read on to learn more about how the market got to this point, what challenges 2024 may bring and strategies for securing affordable homeowners' insurance.
Retrospective: 2023 Home Insurance Market Review
In the wake of many significant events throughout 2023, the homeowner's insurance market is in a challenging position going into 2024. As homeowners attempt to understand and forecast the coming year’s market conditions, trends and patterns, it can be helpful to analyze and consider influencing factors still resonating from months and even years past. Below are some of the most impactful trends that helped shape the 2023 home insurance market.
Inflation’s Impact Still Felt
Although inflation decreased from its 9% peak in mid-2022, the homeowner's insurance market continued to be affected by these former economic conditions in 2023. Estimated costs for rebuilding or repairing homes continued to be high due to elevated prices for building materials and construction labor. Many of these issues began during the COVID-19 pandemic and never fully subsided, as supply chain difficulties still impacted pricing in some sectors at the end of the year.
In addition, the 2023 homeowners' insurance market saw an uptick in social inflation, which refers to the cost of claims outpacing that of economic inflation; this is often fueled by more frequent litigation and increasing settlement amounts. Such large claims are often known as “nuclear verdicts” for their high settlements. These claims are most common among businesses, but the ripple effects of these payouts have still been felt in the personal insurance market, namely through premium increases.
Fundamentally, while inflation rates may change in real time, insurance premiums generally take longer to adjust; varying state regulations and rate-approval procedures can slow this process. Insurance companies are legally required to remain profitable so they can pay for all claims they receive. As such, insurers are expected to raise home insurance premiums in 2024 to maintain solvency.
Climate-related Losses Abound
According to government data, natural disasters and severe weather continued to be a significant cause of home- and property-related losses in 2023; there were 25 severe weather events with estimated costs ranging from $1 billion to $10.5 billion. In fact, reinsurance company Swiss Re said that natural catastrophes were on pace to cause record losses by the end of the year.
Amid hurricanes, wildfires and tornados devastating the country, Swiss Re reported that severe thunderstorms emerged as a significant contributor toward weather-related losses. Paired with high rebuild costs, increased catastrophic weather events contributed to substantial losses for insurance companies in 2023.
In response to these incidents, some large insurance companies withdrew from certain markets, leading to significantly increased prices for those seeking homeowners' insurance in these locations. For example, in 2023, State Farm and Allstate ceased writing new homeowners' policies throughout California due to increased risk levels related to wildfires. Similarly, many major insurance companies have withdrawn from the Florida homeowners' market as hurricanes and tropical storms have continued to pummel the state and cause record losses.
Adding to weather-related problems for homes, the Insurance Information Institute reported that nearly one in three Americans were living in wildland-urban interfaces at the end of 2023—where properties are near the outskirts of developed land. Such locations can be more vulnerable to wildfires and other severe weather, as there are fewer infrastructural resources, which can limit emergency response time.
Insurers showed in 2023 that they’re not inclined to write policies for properties in high-risk areas due to the potential severity and frequency of claims. So, homeowners in certain areas may find affordable insurance difficult to find in 2024, relying on state-run insurers for coverage.
Reinsurance Rates on the Rise
Many insurers acquire and maintain their own insurance coverage to limit their financial risks through a process called reinsurance. Basically, if an insurance company wants to write a policy but cannot feasibly cover all the potential claims costs, it may share some of thatrisk (i.e., cost) with a reinsurance company. This enables more insurers to take on a greater variety of clients—who may be susceptible to major claims—without risking insolvency.
According to industry experts, reinsurance companies had to increase their rates by as much as 40% due to rising losses in recent years. Various economic- and climate-related conditions have caused reinsurance carriers to raise rates or even leave certain markets, much like traditional insurers.
As reinsurance companies adjust their rates, insurers may be limited in terms of which policies they can afford to issue.
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