The cost of homes and insuring homes has been on the rise, forcing people to make tough decisions around coverage and find ways to mitigate costs. According to the National Association of Insurance Commissioners (NAIC), homeowners insurance premiums rose in all 50 states as the demand for homes surged, with the nationwide average annual premium reaching $1,400 as of October 2021. The demand driven by the pandemic and surge of remote work pushed 2020 home sales to the highest level since 2006.
In addition, the increase in natural disasters and weather-related claims paired with the labor and supply shortage impacted homeowners premiums; in places like Florida and California, prices jumped as much as 25%.
Home sales between July 2020 and June 2021 sat on the market for a median period of only one week before going under contract, marking a record low since 1989. As a result, buyers are running out of time to commit to one of the biggest purchases of their lives and often forgo traditional safety measures just to guarantee that they secure a home. Those who aren’t as quick are left on the sidelines. According to the National Association of Home Builders (NAHB), 45% of active buyers haven’t been successful because they keep getting outbid.
Every generation is approaching rising home costs differently
Because finding, affording and buying a home is getting harder and more expensive, different generations are taking different approaches to homeownership and are changing the industry.
Gen Zers have started to dive into the home buying process head first, taking advantage of low-interest rates and purchasing homes across the country. Gen Zers are more eager to buy, with 58% surveyed stating that renting feels like a waste of money, and are willing to move to the suburbs rather than pay more to live in the city. Despite that, Gen Z renters are the fastest-growing active segment of the renter market in the country.
For most Millennials, homeownership seems more like a fantasy than a reality. Unlike Gen Z, this generation has the income to make larger purchases, but not enough to invest on something like a home all on their own. Some first-time homebuyers are pooling their finances with friends, partners and roommates to mitigate the high costs; others aren’t considering homebuying at all.
Millennials actually became the largest share of homebuyers in 2014, and since then the number of co-buyers with different last names increased by 771%. The pandemic normalized this even more, with more people willing to throw in on a home in the suburbs than spend money on rentals in the city. On the flip side, nearly 20% of millennials aren’t interested in owning a home at all and say they want to rent forever, listing affordability as the main deterrent.
Gen Xers only make up 24% of home buyers but are the highest-earning shoppers in the market. This generation is more willing to spend more on larger homes and is the most likely generation to have children and invest in multi-generational homes.
While millennials choosing to rent over buy isn’t necessarily breaking news, baby boomers are migrating to rent over homeownership too. According to a J.D. Power study, 44% of boomers and pre-boomers who are renters today had homeowners insurance in the past. Nearly two-thirds of all growth in the rental housing market between 2004 and 2019 was driven by adults age 55 and older, and that generation makes up about a third of the entire rental market today. A few reasons why renting seems so enticing for baby boomers include flexibility, convenience, downsizing and not wanting to deal with repairs and maintenance.
Boomers who own homes actually have more real-estate wealth than any other generation, but many aren’t listing their houses for sale and are instead investing in remodeling. While their hesitation to list their homes due to pandemic safety precautions and the fear of being unable to find an affordable replacement makes sense, their willingness to stay put is worsening the housing crisis of 2021.
How carriers are adjusting to meet the market climate
As these home buying trends continue to evolve, home insurers are looking for more ways to retain long-term customers:
- Some carriers are heavily investing in home technology solutions: More than half of homeowners with a smart home product installed in their homes report that it helped prevent or lessen damage to property. This creates an opportunity for insurers to increase preventative service offerings.
- Some carriers are pushing customized policies in exchange for data sharing: Almost 50% of Gen Zers and Millennials are more willing to share data for more personalized products and services and better savings.
- Some carriers are bettering their mobile apps as well: A survey conducted by KoverNow revealed that a majority of millennials are willing to read about and purchase insurance via an app. iBuyer also reported 40% of Millennials are comfortable buying a home entirely online.
Carriers that increased premiums in 2021:
Increasing insurance rates is a big piece of the picture when it comes to the rising costs of homeownership across generations. Here are some of the biggest rate hikes this year.
- Progressive put a 15.5% rate hike for homeowners insurance in Texas in September, marking it as the single-most impactful homeowner rate change from any carrier that month. This would give the carrier $26 million in extra premium income.
- Liberty Mutual also hiked rates in Texas and plans to raise rates in 12 other states. These hikes would give the carrier more than $58 million in extra premium income. The carrier also enacted a rate hike in Pennsylvania back in June, which earned the company more than $11 million.
- American Family won approval for three rate hikes across the south, with each rate hike providing the carrier about $8 million in extra premium income.
- Farmers received approvals for 25 rate boosts across the country in June, and earned $16 million in extra premium income after raising rates in Oklahoma.
- State Farm raised rates in Georgia and Nebraska in June 2021.