Why Homeowners Insurance Has Increased

In this video we discuss the significant increase in homeowners insurance costs and the challenges facing the insurance market. First, a congressional probe revealed that non-renewals of homeowners insurance policies have tripled in 200 counties across the US. At this time, this is the worst insurance market in the last 40 years. One of the examples is that Oregon Mutual discontinued its entire homeowners and auto insurance business due to profitability issues. This is more than corporate greed; repeated and severe storms and fires have led to higher value losses and increased frequency of claims. Insurance companies struggle to price policies accurately due to these sudden and significant losses.

In some states like Washington, it can take 9 to 18 months to get price increases approved, making it difficult for insurers to keep up with rising costs. Which means, insurance companies are either stopping sales in certain areas or offering policies at unaffordable prices. There are three key areas for improvement:

• Improved Risk Management: This includes water sensors, avoiding building in high-risk zones, and constructing homes to withstand disasters.
• Improved Efficiency in Insurance Companies: Reducing waste, excess labor, and streamlining processes, potentially through AI and technology, and incentivizing faster claims payments.
• Changes in Coverage Writing: Providing insurers with more information about homes (e.g., through augmented reality) and adjusting lending rules to allow for different valuation approaches, focusing on functionality over exact replication. In short, addressing this issue requires action from multiple angles, as seen in the negative consequences of California’s approach to limiting price increases.