The cost-benefit ratio of insuring some types of residences is becoming less attractive for insurers, leading to higher rates, greater scrutiny and – in some cases, cancelation of policies.
In late September, Nationwide announced it would not renew homeowners’ insurance policies for 10,525 households in North Carolina, over half of them because of hurricane risks. The majority of those nonrenewals are in the eastern part of the state; more than 1,000 are on the Outer Banks, according to the N.C. Department of Insurance.
In the news recently as well is the N.C. Rate Bureau’s request for a 50.6% increase in dwelling insurance rates. Dwelling insurance policies cover non-owner-occupied residences of no more than four units, including rental properties, investment properties and other residential properties that are not occupied full time by the owner. While the N.C. Department of Insurance is contesting so large a rate hike and will likely negotiate a lower increase, the cost of dwelling insurance will almost certainly go up, industry observers say.
With the industry in flux, policyholders should be cautious, said Adrienne Moore, of James E. Moore Insurance in Wilmington.
“Rates are increasing, and they are not going down anytime soon,” she said recently. “What you have to be mindful of is working with a reputable insurance agency, because if your house does suffer a loss, you want to be covered by an insurance company that can pay. There are a lot of companies offering plans in our area that we will not represent because I am not confident [that they have adequate capacity]. We’ve been in business since 1954, and we work with large national insurance companies, like The Hartford.”
Moore referenced the ongoing home insurance crisis in Florida, with insurance companies leaving the state, going out of business or choosing not to renew policies in high-risk areas. The situation has caused a steep rise in insurance policy rates for many Florida homeowners and uncertainty over the future of property insurance in the state. Most recently, Farmers announced it was no longer insuring homeowners in the state, citing increased risk. In July, AAA said it would not renew package policies in Florida that combine home, auto and optional umbrella coverage.
One important factor affecting the industry, of course, is the increased frequency and intensity of weather events all over the world, and the sometimes out-of-sync development.
“More and more construction is being done in weather-prone areas,” Moore added. “Beach cottages used to be designed to let water and sand flow through. They didn’t have HVAC systems. Now [many of them] are primary homes – a lot more structures that are right there to be damaged by storms, meaning that the cost of natural disasters across the country is rising.”
Adding to the frequency of weather events and wildfires is the cost of repairing or replacing damaged structures. And it’s not just increased labor and materials costs, Moore said.
“There has been a huge uptick in roof claims, with [homeowners] claiming damage from wind and hail,” she said, citing the influx of what she terms predatory roofers that see opportunities when an area has been struck by a hurricane or other damaging storm. The roofers knock on people’s doors, encouraging them to file a claim for damage, when in fact the roof may just be old and in need of replacement.
“Insurance companies have to respond to the claim. The majority of these claims are being denied because they have not been damaged by wind and hail,” Moore continued. “These predatory roofers are a major issue. Insurers are saying that roof claims are higher than ever before, even when there has been no major weather event.
“We don’t want to get to where we are like California, Florida or Louisiana, with not much choice of where we get our insurance,” Moore said. “Companies are pulling out of California because they are not able to get adequate rates.”