Is home insurance the new housing crisis?

A housing crisis historically involves affordability issues driven by supply and demand. Buyer demand rises while housing supply goes down, leading to a spike in prices that leaves many priced out of the market or forced to accept options they are not happy with. But in today’s housing market, the ongoing rise in home insurance costs has introduced a new factor to the affordability equation.

Recent reports show that home insurance premiums have increased by 24 percent between 2021 and 2024, with the rise affecting both standard insurance policies and hazard-specific policies focused on threats such as floods and windstorms. Some areas have been hit harder, such as Utah, where rates increased by 59 percent, and Illinois, where rates increased by 50 percent.

Because mortgage companies require proof of home insurance, most homebuyers can’t avoid these rising costs. As a result, many homebuyers find themselves facing a new kind of housing crisis in which they can afford the house they want, but they can’t afford to insure it.

As homeowners navigate the changes in the insurance market, here are some steps they can take to help keep costs as low as possible.

Find out as much about past insurance claims as possible

Affordability will depend not only on how much a homeowner’s first premium will be, but also on how that premium could climb throughout the duration of their mortgage. Finding out about insurance claims that were filed by owners of the property in the past can help get a feel for how costs could rise.

Knowing about past claims is important because it can reveal recurring issues - such as leaks, foundation movement or electrical problems - that a new homeowner will inherit after closing. If those issues lead to future claims, they will likely drive up premiums.

A smart buyer always asks, “How many insurance claims have been filed on this property in the past 10 years, and what were they for?” And they pose the question to the homeowner, later seeking confirmation from the real estate agent.

Play an active role in selecting insurance

As the closing process starts, buyers can quickly become overwhelmed by all the details they must address, especially if they are selling a home at the same time. As a result, they may jump at the opportunity to have the mortgage escrow company manage the process of securing insurance.

That option, however, is typically a huge misstep. The policies they select are often limited and more expensive. They usually cover only the mortgage amount, not the home's true rebuild cost, and tend to exclude essential coverages such as water backup or ordinance and law.

A better move is to work with a licensed broker or independent agent who can build a policy based on the home’s actual replacement value and specific risk profile. It may be more expensive, but it’s the difference between “bare minimum” coverage and one that saves homeowners when something goes wrong.

Before signing anything, it’s critical to make sure coverage matches the actual risks tied to the property. Good coverage may cost more upfront, but it protects the biggest investment most people will ever make.

Leverage brokers to find competitive rates

When faced with the sticker shock that often comes with receiving an insurance quote, home buyers can be tempted to cut corners in ways that leave them unprotected. Resist that temptation. Instead of hunting for the lowest price, homeowners should aim for coverage that lets them sleep at night knowing they’re fully protected.

The best way is to shop smart, but not cheaply. A strong, independent broker can compare multiple carriers to find solid coverage at a competitive rate. And homeowners can further reduce costs by installing safety features, bundling policies, maintaining a good credit score and reviewing coverage annually.

The ongoing rise in insurance premiums is reshaping affordability nationwide. It is a crisis leaving many locked out of the housing market and forcing those who already have mortgages to seek creative solutions for more cost-effective coverage. Until the crisis is solved, buyers must accept high premiums as an unavoidable part of the buying process, seek every possible discount without leaving themselves underinsured and adjust their expectations accordingly.

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Theodore “Ted” Patestos is co-founder and CEO of Tiger Adjusters. Contact him at [email protected].