The rise of deductible insurance

Insurance premiums have surged, with homeowners seeing their premiums increase by an average of 24% over the past three years. But rising premiums are only part of the story. Deductibles in homeowners insurance are also rising. Average deductibles increased by more than 20% in 2025 alone, marking the second consecutive year of double-digit increases. Climate volatility is intensifying, reinsurance costs remain high, and carriers are refining their risk models. These factors make high deductibles a primary target for maintaining profitability.

Insurance is not only becoming more expensive, but it is also becoming harder to access when it matters most. It’s also worth noting that while most of the conversation focuses on homeowners, the same structural pressures are increasingly affecting commercial property owners as well.

The hidden consequences of high deductibles

When deductibles reach a certain threshold, many homeowners simply stop using their insurance. Instead of filing claims, they delay repairs or patch over damage. A cracked exterior might get a coat of paint. A leaking roof might be temporarily sealed rather than replaced.

In the short term, this avoids the cost of a claim. Over time, it leads to more severe damage, higher repair costs and properties that deteriorate faster than they should.

The impact extends beyond individual homeowners. Poorly maintained properties become harder to insure and can affect surrounding property values. Insurers, in turn, face larger losses when deferred damage eventually results in more severe claims. The system begins to work against itself.

Mortgage lenders are also exposed. If a homeowner cannot afford to repair storm damage because their deductible is too high, the underlying value of the property declines. A $400,000 home that remains unrepaired after a major loss is likely no longer a $400,000 asset.

As a result, high deductibles are no longer just a pricing mechanism. They are emerging as a structural risk within the insurance ecosystem. This dynamic creates a growing gap between what insurance promises and what policyholders can realistically access. That gap is now large enough to support an expanding category of solutions.

Deductible buyback isn’t new

The insurance industry has a long history of evolving to address structural gaps. Umbrella policies, excess liability coverage and gap insurance in auto all emerged to solve mismatches between what primary coverage provides and what policyholders actually need.

Deductible buyback follows the same logic. At its core, a deductible buyback is a supplemental policy designed to cover the insured’s financial exposure within a primary policy’s deductible. It allows homeowners to insure the portion of a loss they would otherwise have to pay out of pocket, effectively restoring the usability of their primary insurance.

Importantly, this is not a new concept. Deductible buyback products have existed for years, but saw limited adoption when deductibles were relatively stable and manageable. What has changed is the scale of the problem. As deductibles rise sharply, the need for this type of coverage has become far more immediate.

Unlike parametric insurance products, which rely on predefined triggers such as wind speed or rainfall, deductible buyback coverage is usually tied directly to the underlying insurance policy. It activates only when a loss is approved under the primary policy and applies specifically to the deductible portion of that claim.

If a claim is not covered by the primary policy, the buyback does not apply. This makes it a complementary layer of protection rather than a stand-alone product.

This distinction is critical. The value of deductible buyback is not speed of payout based on external triggers, but alignment with the actual coverage homeowners already have in place. It ensures that when a covered loss occurs, the policyholder can access their insurance without facing a prohibitive upfront cost.

Making coverage work again

The fundamental purpose of insurance is to provide financial resilience in the face of loss. That purpose breaks down when the cost of accessing coverage becomes a barrier in itself.

What is happening today is not just a pricing shift, but a usability problem. Homeowners are paying for coverage that, in many cases, they cannot afford to use.

The good news is that the industry is well-positioned to address this gap. The rise of deductible buyback products reflects a broader recognition that coverage must function in real-world conditions, not only on paper.

The next major insurance innovation will not replace existing policies, but will make them work as intended. By closing the gap created by rising deductibles, these solutions have the potential to restore trust in a system that is increasingly under strain.

This is one of the most significant and under-addressed challenges in the U.S. property insurance market today. Solving it will define the next phase of industry innovation.

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Mike Gulla is CEO and cofounder of Adaptive Insurance. Contact him at [email protected].