This report was originally published on Matic.com
The home insurance landscape witnessed major shifts in 2023, with a multitude of factors impacting the industry. From a decline in policy availability to rising premiums and increased deductibles, homeowners, carriers, and mortgage lenders have all faced significant challenges. Read on for a recap of the top trends in the 2023 home insurance market and our predictions for what lies ahead in 2024.
A look back at 2023’s top home insurance trends
Policy availability decreased substantially
As climate change influenced the frequency and severity of natural disasters and inflation led to high building costs, insurance carriers struggled to remain profitable. Catastrophe losses increased by 121% from 2019 to 2022, leading to additional pressure on carriers. To cover costs, carriers attempted to increase rates but were met with denials and delays from the Department of Insurance. Approval by the DOI is a requirement to raise premiums.
Driven by these regulatory challenges and inability to cover costs, carriers began to limit or completely stop writing new policies in high-risk areas — leading to a 35% decrease in available home insurance policies and online quote declinations reaching an all-time high of 44% in June. This trend was particularly prevalent in states like California and Florida, but also impacted homeowners across the US — most notably in states like Georgia, South Carolina, New Jersey, New York, and Arizona. Because of these restrictions, many homeowners had severely limited options or had difficulty finding insurance altogether.
Premiums reached record levels amidst natural disasters and inflation
In states where rate hikes were approved, premiums increased at an unprecedented level for both new policies and renewals. Homeowners faced an average 8.6% premium increase for new policies in 2023, compared to an average 6.4% from 2021 to 2022 and 2.4% from 2019 to 2020. To put that in perspective, the average premium in 2019 was $1,175, compared to approximately $1,700 in 2023. Even more staggering is the premium increase for renewal policies, which sat at 23.7% or $326 per year. In past years, renewal rates sat closer to 10-12%, indicating a steep increase for those who chose to stay with the same carrier and policy year over year.*
While premiums rose nationwide, some states experienced particularly drastic increases, with South Carolina, Texas, and California facing the highest increases in the country.
Dramatic increases in AOP and wind/hail deductibles
Another prominent trend was a significant increase in home insurance deductibles. New policies with All Other Perils (AOP) deductibles between $2,000 and $2,500 were up nearly 200% since 2019, while those with deductibles of just $500 were down 67%. This increase is largely a result of carriers enforcing higher deductibles to reduce their losses, in addition to recommending increased deductibles to homeowners. Higher deductibles can lower premiums and increase savings, and some homeowners are choosing this route to offset the increase in premiums.
For policy renewals, especially for those in higher risk areas, some carriers are automatically increasing deductibles and alerting policyholders at the time of renewal. As a result, renewal policies with deductibles between $2,000 and $2,500 increased by 63% since 2019, while policies with a $500 deductible decreased by 47%.
Additionally, carriers began adding a separate, required wind/hail deductible in areas that are prone to storm damage. This separate deductible, which is usually 1% of Coverage A, is generally higher than the AOP deductible and further helps carriers offset losses from claims.
New business home insurance deductibles
Renewal business home insurance deductibles
Government inaction and National Flood Insurance Program uncertainty
While flood damage is not typically covered through home insurance and requires a separate policy, a lack of clarity around the government shutdown and potential lapse of the National Flood Insurance Program (NFIP) in the fall led to even more uncertainty. This particularly affected homeowners in high-risk flood regions, who likely already experienced issues securing home insurance as carriers placed more restrictions on new business in flood zones. The NFIP was ultimately extended through February 2024, but experts note that the program is due for an overhaul and will need serious reform to withstand the needs of homeowners at risk of flood damage.
Mortgage lenders struggled with more issues in loan process
The effects of the volatile home insurance market extended to mortgage lenders in 2023. In a recent survey, 79% of mortgage lenders noted an uptick in problems with home insurance in the last year. In particular, record-level insurance rates impacted mortgage eligibility for borrowers, with 68% of lenders indicating that home insurance caused an issue related to a borrower’s debt-to-income (DTI) ratio.
Lack of insurance options and high premiums also caused significant problems with delayed loan closings — 58% of lenders indicated a delay because of the time it took their borrowers to find and secure a suitable home insurance policy. While in the past lenders have likely experienced slowdowns from borrower procrastination, there are several new contributing factors that are compounding the problem. First, customer service wait times at insurance carriers are getting longer, especially in areas where larger carriers have exited completely. In California, a regional carrier experienced an incredible 500% increase in inbound calls after State Farm announced they were exiting the state completely. And with only 10 home insurance carriers allowing customers to bind their home insurance policies online, it’s hard to find a workaround for long wait times.
As lenders already faced decreased volume in 2023’s difficult housing market, these home insurance issues further exacerbated their challenges with increased costs and a less efficient closing process.
2024 trends to watch
Looking ahead to 2024, the aforementioned trends will likely persist and potentially intensify. Here’s an overview of what to expect from the home insurance market in the coming year.
Continued availability constraints
As climate change continues to pose a significant challenge for the home insurance market, carriers may scale back business even more in certain regions — especially in areas that are most susceptible to natural disasters like flooding and wildfires. Because historical data is no longer an accurate predictor of future events, ongoing uncertainty could prompt carriers to continuously reassess their risk exposure throughout the year. However, carriers may begin to lift restrictions in less risky states.
More premium increases and higher deductibles
The rise in catastrophic events nationwide isn’t expected to slow down any time soon, leading to even higher losses for insurance companies. If carriers are able to gain regulatory approvals to increase rates, they’ll likely continue to pass their costs on to homeowners — resulting in even higher insurance rates. However, as inflation slows down in 2024, it’s not likely that premiums will rise at the record-high rates seen in 2023.
Focus on profitability for carriers
In addition to increasing rates, carriers may explore alternative avenues to enhance profitability in the difficult market, such as expanding into other lines of business or adopting alternative distribution and marketing channels. Carriers will likely seek innovative ways to spend less on marketing and lower their overall costs.
Persistent challenges for mortgage lenders
Because challenges with product availability and soaring insurance rates are expected to continue, mortgage lenders could still face problems with insurance related to DTI, mortgage eligibility, and delayed closings in 2024. Additionally, interest rates are expected to remain relatively high, with reports indicating that rates will likely stay above 6% throughout 2024. This makes it even more important to ensure that borrowers can identify options and find ways to offset their increased housing costs. Working with an insurance marketplace like Matic can help borrowers access a wide network of national and regional carriers, and compare rates to find a lower-priced option — potentially helping them meet DTI requirements and speeding up the loan process.
The bottom line
The trends that shaped the home insurance market in 2023 indicate a particularly challenging time, as carriers, homeowners and mortgage lenders navigated a myriad of problems related to climate change and economic uncertainty. As these trends continue in 2024, understanding the evolving landscape will be more important than ever to successfully navigate the volatile market.
*Methodology: Home insurance premiums and deductible data is based on an average from a random sample of 9 million quoted and Matic insured properties. Declination and policy availability is gathered from 30 million quote requests to Matic, 3rd party quoting engines, and carrier direct quotes.