Homeowners Insurance is a Societal Issue

Homeowners insurance is a disaster created by many parties, none of whom work together, but whose teamwork is required to fix the issues. The industry has created an insurance product that is not affordable for many consumers.

Furthermore, study after study shows a large proportion of homeowners are materially underinsured. What’s the value to a consumer of buying an inadequate policy at a price they cannot afford?

On the other side of the equation, carriers are selling an inadequate product at a high price, and yet they still lose money!

This is a societal issue that is causing many people to forgo homeowners insurance. This is not a good result. Additionally, because people with homeowners insurance often discover they don’t have nearly enough coverage after filing claims (see Los Angeles fires, Maui fires, and Florida hurricanes), they lose their homes. They cannot afford to rebuild.

Where do all these people go after they lose their homes, regardless of whether it is because they don’t have adequate coverage or they’ve chosen to forego homeowners insurance entirely?

The insurance industry often points fingers at plaintiff attorneys, roofers, and government officials. Without question, these three entities have completely, selfishly, and unnecessarily caused rates to escalate. Government officials are particularly to blame because they add new building codes without any consideration of the cost of rebuilding to the new virtuous building codes. I’m fairly certain that if they had to live in a tent for a few months, they’d get past their virtue signaling.

But we cannot control what others do.

What can the industry do so that carriers at least break even on homeowners insurance, and consumers can once again afford an insurance product that was relatively inexpensive not long ago?

1. Employ far more capable lobbyists. The plaintiffs' bar would not be so powerful had the insurance industry employed better lobbyists.

2. Don’t assume that carriers are on the same side as agents and consumers on this point. I’ve seen this firsthand between their lobbyists. Insurance is priced on a cost-plus basis. In other words, if they have a $1 million claim, assuming they don’t go insolvent, they eventually pass that claim onto the population through higher premiums. It’s just a timing issue. But what goes unsaid is by adding $1 million of new premium, the carriers get to count that as growth and growth means the C-suite is successful!

3. Go back to HO-1 and HO-2 offerings at significant discounts. Some coverage is better than no coverage if the rate is correct.

4. Get rid of the inanity of blanket underwriting. Be surgical in underwriting risks.

5. This means appreciating risk management. I have found few instances of carriers utilizing risk management, let alone appreciating its value. If someone has a new roof that meets hurricane standards, the odds of roof damage are minor. If someone has the money to invest in a hail-proof roof, odds are high they’re a pretty good risk from every angle. If someone shows evident pride in ownership, the odds of a loss are minor because their gutters are likely to be better attached, among other factors. A person who is willing to clear their property to minimize wildfire risk is not the same risk as a person who must have a cherished tree rubbing their house. And it is not a matter of whether the house is written or not written. Pricing must be a factor because, as it stands, people who take care of their house are more likely to leave the market. They know intuitively their risk does not merit the rate being charged.

Personal lines is a quasi-public service business, like utilities. The government mandates auto insurance, and mortgage companies mandate homeowners insurance. As a public service business, the industry owes the public solutions instead of just increasing rates as though homeowners can afford whatever is charged. I see agents expressing far more concern for helping consumers than carriers. It’s time for carriers to step up and do their part.

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