The U.S. homeowners insurance market is the third-largest line of insurance in the U.S. after private passenger auto insurance and the all other lines market, according to the NAIC. Direct written premiums for the homeowners line of business at the end of 2020 totaled $110.3 billion, representing an increase of $6.3 billion from the 2019 year-end total of $104.0 billion.

“The booming housing market across the country has contributed to a greater demand for homeowners insurance," says Jim Hyatt, senior vice president, personal lines, Arbella Insurance Group.

Yet, rates for homeowners policies remain high “due to the increased cost of building materials because of the pandemic's disruption to the supply chain and available labor markets, as well as recent catastrophic weather events," says Carol Anderson, personal lines property leader, assistant vice president, Foremost®, A Farmers Insurance® Company.

“In addition, rising reinsurance costs will result in a greater rate need and evaluation of capacity in affected markets," says Wendy Cammet, head of specialty lines property product, Foremost®, a Farmers Insurance® Company.

This culmination of these factors means that rates are hardening. However, they had already begun to harden at the tail-end of 2019 and have continued to climb since then, explains Bill Gatewood, corporate senior vice president, national personal insurance practice leader, Burns & Wilcox.

“We've had a lot of carriers cut back or leave some of the high hazard areas," he says. “We've seen Lloyd's of London syndicates leave California altogether, and we've seen admitted companies close off new business. That means there is less capacity than before and that's also contributed to the rising prices."

In certain areas, like Florida, that are subject to catastrophic weather events, “we're seeing some policies with stripped-down coverage to manage higher rates," says Dave Pratt, property insurance general manager, Progressive Home Insurance. “I worry this will lead to bad customer experiences in the event of a claim, and I encourage agents to ensure adequate coverage limits for both the main property and any additional structures and include personal property replacement cost coverage on homeowners insurance policies."

COVID-19 has affected the homeowners insurance market in several ways. Here are three reasons homeowners need more coverage than they did before the pandemic:

1) Home remodeling and purchasing. “With everyone working from home this past year, home improvement projects and home renovations are on the rise," Hyatt says. “This includes updates to in-home technology, added home offices, and installing backyard pools. Homeowners need to be aware of the implications these changes have on their insurance and make sure they are appropriately covered."

Additionally, we have seen “a greater desire for homeownership, increased square footage and lot sizes, and enhanced spaces to accommodate work and remote school," Cammet says.

Many people will continue to work from home and “I'm very eager to see what new types of coverages might emerge from this," Gatewood says. “It's probably one of the more significant, real changes we've seen in the homeowner market in a long time."

2) Cyber threats. The past 18 months “saw a drastic increase in cybersecurity threats, including hacking and phishing attempts, as the world moved to remote work," Hyatt says. “This led many home and condo owners to invest in cybersecurity protection. This trend won't go away any time soon."

“We're seeing the number of identity fraud scams, unemployment scams, tax-related scams and health insurance scams on the rise," Gatewood says. “People are going to have to protect their digital security the same way they protect their physical security with a homeowners policy."

3) Rising settlements. “Many customers are buying or increasing their umbrella coverage, due in part to social inflation," Hyatt says. “We are seeing an increase in litigation and juries are awarding more payouts in larger sums. Personal umbrella policies are becoming more common and agents should encourage their customers to invest in them."

The pandemic has changed so much for so many people. In insurance, it has changed the way independent agents interact with their customers.

“Agents should ensure that they are maintaining customer contact and increasing customer value by enhancing their online presence by utilizing social media," says Sally Kressin, vice president, product management, American Modern. “In the end, the agent-client relationship should benefit from the customer-centric approach as they get the insurance coverage they need and trust the agent to help them moving forward."

Olivia Overman is IA content editor.