Home ownership has been a long-standing dream for many Americans, but the convergence of various events and developments over the last few years has made it harder to keep that dream from turning into a nightmare. For example, more intense extreme-weather events and other natural disasters, such as Superstorm Sandy, California wildfires and tornados in the Plains and Midwest, highlight the potential daunting expenses of rebuilding or repairing the dream should the worst happen.
Such nightmares are not just haunting homeowners. As the climate continues to change, the challenges of finding a way to deal with increasing storm severity is readily apparent to insurers as well. According to Verisk subsidiary AIR Worldwide, since 1990, annual aggregate losses caused by severe thunderstorms in the United States on average are responsible for more than half of all insured catastrophe losses. In 2011 alone, thunderstorm events cost the industry $25 billion—a high price for the cost of doing business. The continuing trend makes it more important than ever for homeowners to be vigilant about maintaining their dream homes and property—ensuring roofs are sealed, gutters are clear and in good condition, and trees are healthy and pruned as a defense against strong winds that could have a devastating effect on a house after a severe storm.
The responsibility associated with properly maintaining the dream can be particularly burdensome during tough economic times. And while the most recent economic downturn has improved somewhat, times remain tough for many as evidenced in the ongoing neglect of regular repairs and maintenance by some homeowners. Examples of such neglect include:
- Putting off the purchase of replacement windows and new appliances if the old ones “still get the job done,” no matter how poorly. Postponing the purchase of home improvement upgrades is something some homeowners simply should not do but may not be able to avoid.
- Not hiring contractors to do regular inspections and service because of monetary constraints might leave the homeowner unaware of looming problems such neglect can create. For example, insureds don't generally check their washing machine hookups and other appliances for leaks or corrosion. It makes sense to inspect a boiler and water heater regularly, but many homeowners overlook such tasks.
- Failing to recognize that changes in the way we live and build our homes, and not just the needs of older homes, also present risk. A basement washing machine that develops a leak may cause some damage. But the same appliance located on a home's second floor can damage carpets, furniture, electronics, wallboard and wood flooring throughout the house if connections break while the homeowner is away. Add the additional living expenses incurred during the course of repair, and the loss can be extensive.
In addition to the strain on repairs and maintenance, the economic downturn precipitated other consequences. For example, the percentage of millennials moving back in with their parents because of financial hardship is 17 points higher than was the case for their Gen X counterparts, according to a recent survey by salary data company Payscale. This “return to the nest” phenomenon itself can present potential new exposures and can alter Millennial parents’ homeowners risk profiles.
And if any of these challenges aren’t enough to disturb a sound slumber, consider the risks inherent in some of the following emerging trends:
- Our mobile app society is bringing our ability to control lights, garage doors, heaters, and household alarms through WiFi networks on smartphones and tablets closer to reality for more homeowners than ever before. But such advances give hackers a new way to cause damage.
- Services that offer shared living spaces are becoming a popular resource for people seeking ways to help pay the rent or mortgage. One such business claims to have launched house- or room-sharing services in 34,000 cities in 192 countries.
- Roof repair and replacement may be even costlier as homeowners install solar panels. Decreasing prices and other incentives have increased the growth of the solar market. The U.S. solar industry had a record-shattering year in 2013, according to GTM Research and the Solar Energy Industries Association, which added that solar was the second-largest source of new electricity generating capacity in the U.S., exceeded only by natural gas. Additionally, the organization reported the cost to install solar fell throughout the year, ending the year 15 percent below the mark set at the end of 2012. Net metering could present additional exposure as homeowners try to reduce their electric bill and capitalize on their solar panel investment.
- Still another emerging risk involves non-homeowners. The National Multifamily Housing Council reports one-third of U.S. occupants are renters. Consider that in tandem with consulting firm Conning’s statistic that only 15% of property policies are renters policies. And trends indicate that the number of renters in the market is growing. Such statistics match up with insurer findings. One recent survey noted: “despite the fact that millennials are renting in unprecedented numbers, the majority of young adult renters (56%) do not have renters insurance—leaving their homes and belongings at risk. Additionally, 75% of those without renters insurance don’t realize they can get monthly coverage for as little as the cost of a pair of movie tickets.”
While such risks have emerged over the last several years, let’s not forget about the opportunities they present, both in helping customers fulfill their dream in addition to finding untapped markets. By using cutting-edge data and analytics tools to price more accurately and to provide incentives to reduce the potential for loss, insurers can adapt to the changing times. With data and analytics, insurers may more accurately evaluate the homes they cover and better assess the homeowners’ evolving risk profiles. Predictive analytics enables underwriting and claims staff to make data-driven decisions that lead to better risk selection, pricing, and claims handling.
Beyond such potential business opportunities, insurers can create incentives that may ultimately lower premiums and reduce claims. For example, insurers can offer a program to insureds who get an education about lurking risks and take steps to mitigate future losses. Addressing issues from aging roofs to washing machine hose connections and hot water heaters, insurers can provide discounts or lower deductibles for attendees and, in turn, potentially help reduce future losses and claims.
While the convergence of these trends and associated risks might contribute to a level of volatility that can keep many people up at night, volatility is nothing new to homeowners insurance, which has historically seen its share of oscillation in underwriting performance. According to industry data, since 1992 the combined ratio in the homeowners line has fluctuated from a low of 89.0 in 2006 to a high of 158.4 in 1992, and year-to-year fluctuations of 10 points or more have occurred 10 times in the last 20 years. That’s proof enough that the industry needs sound strategies to make homeowners insurance more stable and profitable, especially given the recent events and developments in the market. Applying the appropriate technology to the tasks at hand can support that effort—besides helping policyholders and insurers get their ZZZs.
Jeff De Turris, CPCU, is assistant vice president of Personal Lines, ISO Insurance Programs and Analytic Services, a member of the Verisk Insurance Solutions group at Verisk Analytics.