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Digital insurtech platform Matic has released its annual year-end trends and predictions report analyzing major trends that impacted the home insurance landscape in 2023. The findings, which aggregate data from 30 million quote requests, nine million properties, and external quoting engines, reveal record premium increases, a notable increase in All Other Perils (AOP) and wind/hail deductibles, and limited product availability as carriers exited high-risk regions, among other trends. Additionally, the report notes that mortgage lenders in particular have faced increased challenges within their loan processes due to the difficult insurance market, as home insurance is a requirement to secure a mortgage.
The report covers findings from a recent Matic survey, indicating that 79% of mortgage lenders experienced an increase in problems with home insurance in the last year. Specifically, record-level insurance rates impacted mortgage eligibility for borrowers, with 68% of lenders noting 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, with 58% of lenders indicating a delay because of the time it took their borrowers to find and secure a suitable home insurance policy.
"While lenders have previously faced issues with delays in the home insurance process, there are several new contributing factors that are compounding the problem, including pricing, low availability, and longer customer service wait times as homeowners were forced to switch to new carriers en masse," said Ben Madick, CEO and Co-Founder of Matic Insurance. "As lenders already grappled with 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."
Additional report findings underscore these problems, indicating that policy availability decreased substantially in 2023. As carriers faced premium change request delays and denials from insurance regulators and were unable to cover increased losses, carriers began to limit or stop writing new business in high-risk areas. Because of these restrictions, many homeowners had severely limited options or had difficulty finding insurance altogether. Notably, 2023 saw a 35% decrease in available home insurance policies and an all-time high online quote declination rate of 44%.
In states where rate hikes were approved, premiums increased at an unprecedented rate 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. Premium increases for renewal policies 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.
The report also notes a significant increase in home insurance deductibles in 2023. New policies with 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. 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.
The report indicates that these trends will likely persist in 2024. As climate change continues to pose a significant challenge, carriers may scale back business even more in certain regions 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 frequently reassess their risk exposure.
Continued premium increases and higher deductibles are also expected. However, as inflation slows down in 2024, it’s not likely that premiums will rise at the record-high rates seen in 2023. Carriers may also explore alternative avenues to enhance profitability in 2024, such as expanding into other lines of business or adopting alternative distribution and marketing channels.
Mortgage lenders could continue to face challenges 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 may stay above 6% throughout 2024.
“The high cost of homeownership today makes it even more important for mortgage lenders to ensure that borrowers find ways to offset their increased expenses," said Madick. "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.”
Click here for more information on Matic’s report.
