American homeowners spend over $400 billion each year on do-it-yourself (DIY) projects, renovations and home repairs, according to the Improving America's Housing 2021 report by the Harvard Joint Center for Housing Studies. This figure has increased significantly over the past two years as people modified their living spaces for work, home schooling and completing general upgrades while working from home during the COVID-19 pandemic.

But while more and more people are updating or remodeling their homes, many do not consider updating their homeowners insurance to reflect the updates. Failing to do so could leave them underinsured and at risk of financial loss. As construction costs continue to surge, independent agents play a central role in ensuring their clients understand how any type of home improvement can affect insurance coverage limits, as well as their insurance rates. 

“When you look at the homeowners market, we're seeing consumers investing in their homes in the form of renovations," says Brad Lemons, senior vice president, personal lines product and underwriting, Nationwide. “It's under the umbrella of pride of ownership—it's spending money to redo bathrooms and redo kitchens. Some people are investing in wear and tear of furnaces or appliances as well as elsewhere in the home."

In fact, most homeowners are focused on repairing wear and tear (57%), making their homes more enjoyable (55%), or changing something that's outdated (49%), according to a Nationwide survey released in March. And as rising house prices prevent many people from purchasing a new home, 77% plan on continuing to invest and work on projects in their current homes or have future remodeling plans, according to the survey.

However, “a danger of the increased home repair and renovation trend is that within home insurance many homeowners will find their Coverage A to be insufficient after a sizable home renovation unless they have diligently worked with their agent to update their coverage limits," says Grant Owens, chief insurance product officer, Openly. 

Consumers are currently facing “significant increases in the cost of building materials and, at the same time, home construction and renovation has increased considerably," says Shelly Gallagher, vice president, personal lines operations, Selective Insurance. “With inflation impacting home repair and reconstruction costs, we've started seeing carriers taking rate increases to help keep up with loss trend and inflation."

Nevertheless, inflation and supply chain challenges are not deterring homeowners' renovation and remodeling plans, according to the Nationwide survey, with 71% of those surveyed expected to proceed with their projects despite delays and increased costs. 

To assist consumers, “agents should be reaching out to their customers to discuss their coverage and make sure it's adequate," says Angi Orbann, vice president of personal insurance property, Travelers. “Meanwhile, insureds should check and validate their overall dwelling coverage amount."

“Agents can engage with their customers regarding activities that may have occurred during the pandemic in their home such as major renovations, buying a second home, working from home considerations, and other structures such as a new shed or a pool on the property," Orbann says.

In a changed personal lines marketplace, agents that adapted to the pandemic by creating a digital experience will achieve success because “they can meet consumers where they want to do business," Lemons says. 

Digitalization gives consumers greater flexibility and “allows agents to quickly determine what new exposures a consumer has that they may not have had in the home prior to the COVID-19 pandemic," Lemons says, especially now that many homeowners' habits related to work and leisure have changed. “Agents who proactively are engaging their customers on these changing dynamics will enhance their value proposition and strengthen customer loyalty."

In some states, “there has been a tightening of availability in the homeowners market. At the same time, agents and carriers have been working together to build robust coverage offerings and also improve the customer experience–particularly by improving ease of doing business," Gallagher says. “While we're seeing coverage offerings expand, the most important factor is that the agent understands the consumer's needs to build out a policy that appropriately protects their property and all of the investments they've made in it."

Olivia Overman is IA content editor.