9 Tips to Buying a New Home
I have been discussing the issues with the drastically increasing premiums as well as the rather draconian underwriting guidelines on homeowners insurance. So I decided to put the reasons in writing. I apologize up front for the following epic email. Summation.Due to external factors beyond all of our control, the rapidly increasing premiums in the entire insurance industry have caused a great deal of stress with account representatives who deal with clients daily. They understand the client comments about the price of insurance. I don’t think we, as independent insurance agents as a whole, have yet to convey to clients the causes of such increases as well as the insurance companies’ response. The industry has determined that the private homeowners insurance segment is no longer profitable at this time. This happens in a very cyclical way which we term as the “Hard” and “Soft” markets. We are in a major “hard” market. People assume that they can shop their business to any number of insurance agencies or the internet. It is not the number of agents; it is the limited number of insurance companies that are licensed to do business in the state. There are only about thirty carriers in the state and while we have access to 90% of them, they are looking for ways to limit the amount of property coverage they are placing right now. Hence there is a “hard market” today. Why the sudden increase in premiums? The industry is in a bit of financial distress caused by the massive losses incurred in Florida, with Hurricane Ian, and California, with the continuous wildfires. The middle of the country has been pounded by hail and tornados. The costs have added up so much that last year State Farm Insurance Company was downgraded by AM Best for an “A” rating to a “B+” rating. State Farm is the largest homeowner’s carrier in the nation. To us, in the rest of the industry, that was cataclysmic. Since the insurance industry is based on the performance of large groups, such catastrophic losses over large regions have caused the entire industry to raise premiums. And then, there is inflation which has hit everywhere. The price of home building supplies, car parts, groceries, salaries and so many other everyday necessities has caused increased costs. The insurance industry’s response to high losses and increase costs? The insurance companies tend to use one or two strategies to reduce their losses and maintain financial solvency based on state and federal regulations. The first strategy is to review their business book and either cancel or non-renew homes that they deem to be improperly maintained and therefore subject to increased risk. The second strategy is one that they use as a last resort, so as not lose market share, is to raise premiums. We entered the second phase last year. The increased pricing started with the reinsurance carriers (companies who insure insurance company (Lloyds of London, Swiss Re, Berkshire Re and others) raising their rates due to their global risk and losses worldwide. At that point, all home insurance carriers have raised their rates to cover that addition higher cost of reinsurance. We have seen an average of a 30% increase across the board on all the homeowners insurance carriers that we represent. All independent insurance agents have seen that occur countrywide. Also, personal insurance has changed in Massachusetts. Now you must look at both your home and auto policies “globally” as one entity. Some companies call it “Bundling.” Now you have to look at the home, auto and any other personal policy such as an Umbrella policy as a package with one total premium. If you have your auto and home insurance together in one company, they give credits on each policy for having both policies. If you move one policy from a company that provides coverage for your entire account, then the other policies will increase in premium, and it can amount to several hundred dollars. So, you may save $100 off your home policy by moving to a different company, but the premium will increase on the home policy since both policies are not with the same company. It makes things complicated for you and the account representative who is working with you. Add to the above fact that once a new company becomes involved, then their underwriting guidelines come into play. The new company will inspect your home. If they determine that there is either a risk such as roof age or trees near the house, debris in the yard, they will issue a legal notice of cancellation due to failure to comply with their guidelines. If they feel the house is underinsured, then they will increase the insurance limit and bill the extra and thus wiping out any savings that occurred with the change. Remember homeowners policy pricing requires that a homeowner lives in the home and has a pride of ownership in the upkeep of their home. If the home is left to age without updates, then the insurance company will non-renew coverage on the home. If the homeowner won’t take care of their own home, then the insurance company doesn’t want to insure it with a homeowners policy. There are other policy types to cover a house, but the prices are much higher. You still with me? This is a complex subject. The consumer reaction… When a hard market happens, the response has always been to “shop” the coverage. Which results in client calls requesting the home policy be shopped around. We understand the reaction since TV advertising from national companies say they can do all the work in 15 minutes and save money. It is easy for them since the potential customer does all the work on the company’s website and the computer spits out one premium based on the provided information. It looks great up front, but the company will inspect the home, research credit ratings, check for past claims and requote everything based on all that information. So, their “quote” is really
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