In order to leverage the competitive homeowners marketplace to your agency’s advantage, you need to know what’s happening with hot trends like new home construction and telematics.
Hot competition has dominated the homeowners insurance market for most of 2015. Are you leveraging the marketplace to your agency’s advantage?
Here are the top trends to keep an eye on in order to better serve your homeowners prospects and clients this year.
New home construction. “We look at a lot of non-catastrophe trends to try to wash out the impact of the cats,” says Alan Dobbins, director and senior research analyst with the insurance research group at Conning. “What we’ve been seeing is a pretty steady decline in non-catastrophe frequency since about 2011. But alongside that, it’s been a pretty steady increase in average loss.”
Why are homeowners claims costs on the rise? “When the housing market was down and there weren’t as many new home starts going on, there was a huge glut of housing market and a lot of it was sitting vacant,” says Bill Gatewood, vice president of personal insurance at Burns & Wilcox. “Now, all across the country there’s a lot of new home starts and pricing is going up. The cost to rebuild after an insurance loss follows right along.”
The same goes for the cost of materials. “Every time we see a catastrophic loss, we see the price of lumber and drywall and other supplies go up, which is going to fuel loss costs for carriers,” Gatewood points out. “A healthy housing market is going to mean we’re going to see a rise in loss costs as materials and labor rates increase.”
“Construction costs are going up in general,” agrees Richard Kerr, MarketScout CEO. “If you build a new home in a wind-exposed area, it’s normally required that home be mitigated—putting in straps and different construction. That’s really expensive.”
Mitigation measures are effective at protecting homes against catastrophic events, but “if you’re mitigated for wind and the house catches on fire, it’s still going to burn down,” Kerr says. “Now, instead of replacing a house at 300 a foot, you’re replacing a house at 400 a foot.”
Agents should note that right now, many newer homes belong to the high net-worth category. “That’s the segment that can afford and qualify for a home right now,” Dobbins says—which makes high net-worth homeowners insurance a lucrative niche for carriers. “They see that’s where some opportunity is and they’re going after it.”
Telematics. Adding to loss costs for high net-worth homes is the rise of in-home telematics, which experts expect to trickle down to the traditional homeowners segment in the near future. “People are devoting resources to that based on what they’ve done with vehicle data,” Dobbins says. “There are a lot of avenues for data collection in the home that didn’t exist before and are getting increasing penetration.”
Even “smart homes” located in the most benign regions could face expensive claims due to the high costs associated with repairs. “Just think of the expense of all the electronics—there’s a lot of money in there,” Kerr says. “Where the prices are going up, the exposure’s up too and the insurers deserve that extra money because they’re much bigger claims.”
For example, Kerr notes high-end homes with 12-car garages where homeowners can park a vehicle on a 360-degree spinning dial that can turn to accommodate exactly which car the driver intends to use at the moment. “This is becoming commonplace,” Kerr says. “Can you imagine the expense of that? With the smart homes and now the very technical nature of the coverages, the coverage suite on high net-worth homeowners is completely different than a traditional home.”
From home security systems and video monitors to gaming systems and smart utilities like the Nest product suite, telematics have the potential to reduce homeowners exposure and prevent risks in the future. “You could get a home that can detect a fire before the fire begins,” Dobbins says. “It’s an interesting set of services—feasibly, insurers could rely less on the post-event loss payment and more on mitigation services.”
For information on two more trends that are shaking up the homeowners insurance market, keep an eye on IAmagazine.com and next week’s edition of the Markets Pulse e-newsletter.
Jacquelyn Connelly is IA senior editor.
