As recently as five years ago, homeowners insurance was certainly not top of mind for most homebuyers and their real estate agents, but the rapidly rising cost of insurance premiums is changing that.
“Before, insurance was kind of an afterthought. It was just a box to check off,” said Paul Scalone, a San Diego-based Compass agent and the owner of Dignified Insurance Services. “Now we are looking at a two- to three- business-day process and the buyer may not like the numbers they get back.”
For some buyers, surprisingly high insurance premiums are causing them to second-guess the property they have selected.
“I recently read about an agent in Florida who said that one out of every four of their closing transactions has failed because of the cost of insurance,” said Mark Friedlander, the director of corporate communications at the Insurance Information Institute. “That just shows you how impactful the cost of insurance is in the real estate market.”
And Florida, which has frequently been in the news for rising premium costs, isn’t the only place where this is happening. In Texas, Danny Thompson, the vice president and co-owner of Goosehead Insurance Sexton-Thompson Agency, said he has seen buyers in the Lone Star State back out of deals once they found out how much it would cost to insure the property they wanted.
“The rate increases are dramatic,” said Thompson, who previously worked as a Keller Williams agent for 17 years. “I’ve had clients who just don’t want to deal with the premium costs on certain properties and say they will just find something else.”
An analysis by S&P Global found that homeowners insurance rates increased by an average of 11.3% nationwide in 2023, with Farmers Insurance Group of Cos. and Liberty Mutual Holding Co. Inc. recording the highest calculated weighted average rate increase at 19.4% and 17.2%, respectively.
On a state-by-state basis, Thompson’s home state of Texas recorded the highest rate increase in 2023 at 23.3%, followed by Arizona at 21.8% and Utah at 20.3%.
Over the past five years, insurance premiums have risen by an average of nearly 34%, according to the S&P Global data, with Progressive recording the highest cumulative rate change since 2018 at 55.3%. Texas again took the dubious top honors with the highest cumulative rate change at 59.9%, followed by Colorado (57.9%) and Arizona (52.9%).
These rate hikes come as the Insurance Information Institute estimated that 2023 was the worst year for underwriting losses by home insurers since 2011. These losses are due to multiple factors, including inflation-fueled rebuilding costs, which the institute said rose 55% between 2019 and 2022.
There has also been an uptick in the strength and scale of natural disasters. According to data from the National Oceanic and Atmospheric Administration (NOAA), in the 1980s the U.S. experienced roughly three disasters per year that caused at least $1 billion in damages. But in the past three years, there were an average of 22 billion-dollar disasters per year, and the NOAA only expects this number to rise due to the effects of climate change.
“One of the biggest issues is storm losses and catastrophic losses,” Friedlander said. “Last year alone, NOAA data shows there were 28 $1 billion weather and climate events in the U.S. That is the most ever in a single year.”
In California alone, research consulting firm Milliman found that wildfire damage in 2017 and 2018 wiped out more than twice the previous 25 years’ worth of underwriting profits for the state’s insurance market.
For insurers, this means that even though rates have gone up, it still is not enough to cover all of their losses. This has led the Insurance Information Institute to report that consumers should expect a nationwide average hike of at least 10% to 13% in 2024.
For real estate agents, this means they’re having to discuss insurance options with their buyer clients a lot sooner than they did previously.
“When I was at Keller Williams, Gary Keller used to always say there is 191 things that a buyer’s agent had to do to get something closed and insurance was never one of them,” Thompson said. “But it is not 193 because you have insurance and you need to pull a claim report, because prior claims have a tremendous impact on whether a carrier will cover the property or have an extra surcharge in order to cover it.
“Our Realtor partners are getting us involved earlier on in the transaction, to get the insurance quote as early as possible in the transaction, and that has helped them considerably because now they can make a decision as far as whether or not the property is one they want to move forward with.”
In Virginia Beach, Virginia, which is at high risk for potential hurricane damage, local agent Matthew Salway of Iron Valley Real Estate Hampton Roads | Virginia Beach said he makes a point to discuss flood insurance costs with buyers.
“It usually plays quite a factor because you are pretty much doubling your homeowners insurance costs if you are buying in a flood zone,” Salway said.
While he has not had anyone back out of a deal because of this, he said he feels it is important that buyers know exactly what they’re getting into.
On nearby Chincoteague Island, Virginia, Long & Foster Real Estate agent Meghan O. Clarkson said that she has also begun discussing homeowners insurance costs with her clients earlier in the transaction. Many carriers in her area have started to refuse to insure properties if they deem that the roof is too old.
“I’ve had a few instances where an insurance company wouldn’t insure the house or another one would, but the premium would be $5,000 a year. But if there was a new roof, it would be $2,800 a year, so we ended up renegotiating with the seller for a new roof,” Clarkson explained.
She has also started discussing these details with prospective sellers at listing presentations.
“No one wants to find out the day before closing that their buyer can’t get any insurance because the roof is 20 years old,” Clarkson said.
On the insurance side of things, Thompson believes situations like these are prime examples of why homeowners insurance needs to be a larger part of the homebuying education process.
“Before, Realtors didn’t really need us, but now more than ever it is actually a necessity to have an insurance agent you can rely on,” Thompson said.
