Update on homeowners' insurance market

Soft rates, hardening targets

Nationwide's Vice President of Product and Integrated Solutions Anthony Washington notes that commercial property rates have generally been soft — and very competitive. "Per MarketScout, in the first quarter of 2017 rates are slightly moving up at an estimated 1%. The belief is this upward trend will continue through 2017 and into 2018," he says. Given the trends in the economy, more people are renting, "and the increase in construction of habitational structures in 2016 was significant," he adds.

Rental units are in high demand, and homeownership rates are down nearly 10% since peaking in 2004. Meanwhile, new apartment starts have increased for six years running, with 2017 projected to be the seventh year, Washington points out.

"Occupancy rates are at, or near, all-time highs nationwide at 96.3%. This all translates into a healthy rental unit market," he adds.

Some questions exist, says Washington, including when new supply will meet or exceed demand: "Current data suggests that despite an increase of completed projects, demand will remain very high with rents increasing and labor shortages causing continued delays in project completion."

Such things as home equipment breakdown, service line and home cyber policies are now moving into the mainstream as critical coverages that property owners and renters are seeking from their insurance carriers. Those options create unique opportunities for carriers to provide enhanced coverage to their customers at an affordable price point.

"Rental unit pricing has steadily increased over the past few years as the desire for both millennials and baby boomers to own homes has decreased," Coffman explains. "Home ownership, once a staple of financial stability, has given rise to a new wave of habitation in which individuals choose to rent in order to remain more mobile and avoid the inherent costs of property tax and maintenance."

Movin' on up

One additional challenge for the market is that the buildings themselves that are being insured are changing, notes Chris Hackett, PCI's senior director of personal lines policy.

NAIC data shows that the average insured value of a home has increased significantly in the past 10 to 15 years, Hackett explains, and building materials and labor costs to repair homes have steadily increased over the long term. Additionally, newly constructed homes have larger square footage on average than existing housing stock built more than 30 years ago.

"These larger homes, which tend to be filled with more personal property, are more expensive to insure," he says. "The U.S. population living in coastal areas continues to grow. This population trend increases the demand for housing in some of America's most hurricane-prone areas."

The amount and type of personal property in homes these days has seen a generational shift — to higher values. "Think about where you live now, as compared to where you grew up," says Coffman. "How many TVs did you have as a child? Did your parents own laptops? I'm guessing there wasn't a tablet in the house. The ability to control temperature, lights and locks from a smartphone was not an option. All of this new technology comes at a potential cost due to the fragile nature of the equipment and the frequency with which it can fail. As you increase the use of electronic circuitry in equipment, the opportunity for a breakdown also increases."

Cyber risks for renters

Another growing exposure for property owners and renters alike are cyber risks. Data breaches and cyber attacks are a significant risk for any business, and consumers are more connected than ever — from their computers and phones, to entertainment systems and even household appliances, thermostats, cameras and other equipment.

"Commercial cyber insurance coverage for the owners of apartments and other rental properties has been available for years to cover significant exposures for breach of personal information and other cyber risks. Until recently, however, no cyber coverage had been available for renters to cover exposures such as computer attack, cyber extortion and online fraud," notes Timothy Zeilman, vice president of strategic products for Hartford Steam Boiler.

Now, cyber coverage is evolving to include products specifically designed for homeowners and renters. These personal lines cyber coverages can help renters and other consumers deal with malware removal, home systems attacks, phishing schemes and ransomware attacks.

"Cyber insurance coverage will become more important in the rental market as families continue to add home devices and systems that are connected to the Internet of Things and create new pathways for hackers and cyber criminals to penetrate their home data networks," adds Zeilman.

All told, the property market faces a healthy set of challenges going forward.

PCI's Hackett sums them up succinctly: "An increase in the frequency and severity of natural disasters over the long term; a lower than expected return on investment income; a steady increase in population along America's coastline, creating more demand for housing in disaster prone areas; newly constructed homes with larger square footage, upgraded features and more personal property items to insure as compared to older housing stock (for example, homes constructed more than 30 years ago)," he says. "This will increase overall exposure for property insurers over the long term."