Three Ways the Insurance Industry Could Be Affected
Recent headlines say it all. “US Home Prices Rise at Fastest Pace in More Than 30 Years,” according to the Financial Times. “Yes, Real Estate Prices are Soaring, and No, It’s Not a Bubble,” proclaims Bloomberg Businessweek.
From Boston to Orlando to Sioux Falls to Albuquerque, inventory is low and median home prices are at an all-time high. Good news all around, right? Not necessarily. There’s more to the story.
From the Wall Street Journal: “If You Sell a House These Days, the Buyer Might Be a Pension Fund.” And from the Traverse City Record-Eagle: “Soaring Home Prices Push Local Buyers Out of Hot Housing Market.” Also, there’s this from the New York Times: “Homelessness in the U.S. Rose for the Fourth Straight Year, Report Says.”
A boom for some is becoming a bust for others, creating some changing dynamics that are likely to affect the insurance industry.
Higher Home Values, Higher Policy Amounts
In many major cities, home values have increased 20, 30 and even 40 percent—in the last year. Smaller cities and more-rural areas have also seen values rise as working from home has become more popular and commute times are no longer a factor for some.
Along with higher home costs, the pandemic-driven home improvement craze and supply chain disruptions have made it pricier to build and rebuild homes. This means that many homeowners who have lived in the same location for years are likely due for a noticeable reset when it comes to tallying their replacement cost value. Besides writing higher policies on new clients, this is a great opportunity for insurance agents to reach out to current customers to ratchet up their policy amounts.
Fewer Homes, More Renters
With home inventories low, some home sellers who would typically purchase a new property right away are finding it impossible to do so and are having to rent instead. These are not broke 20-somethings, they are established adults with valuable items to protect.
Do they know about renters insurance or remember that it exists? Maybe it’s time to inform them of the benefits and relatively low cost of this line of coverage, which may not be top of mind for those who haven’t rented for years.
More Disparity, More Crime, More Claims
One of the tragic side effects of a tightening home-buying market is increasing numbers of people with nowhere to live. Combine that group with people whose incomes plummeted during the pandemic and who no longer have eviction protection and others dealing with psychosocial factors like trauma and addiction, and it’s a perfect storm for societal discord.
Trends in crime statistics can take years to reveal themselves, but in many areas of the country, the number of burglaries and other property crimes seems to be increasing. (For example, in Denver, the property crime rate as of June 2021 was up 22% over the same period in 2020.) It’s quite possible that the insurance industry will see more burglary and theft claims if this trend continues. This will then translate into higher rates for consumers as insurance companies work to replenish their coffers.
No one can predict the future, but the home-buying frenzy that the U.S. has experienced in 2020 and 2021 is sure to have repercussions, and the insurance industry is going to feel them, possibly in some unexpected ways.
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