A white house on the water

How High-Net-Worth Homeowners Became Harder to Cover

The Future of the Market 

As insurers reduce capacity and rates continue to rise with double-digit growth, the high-net-worth homeowners market is becoming the “most challenging market in decades.” The popular opinion is that this trend will continue for the foreseeable future as insurers seek a means to reduce the impact on their losses caused by weather-related occurrences or other unpredictable factors or as rates harden to the point that capital starts to flow back into the market. 

The Issues

Rates are continuing to increase, with insurers pursuing 8% to 12% for homes, up from 6% to 8% last year. With regulatory limitations on rates, insurers are turning to the Excess and Surplus market (E&S) to insure what others won’t, such as high-risk exposures and crippling losses.

The growing list of pain points does not stop here, however, as many other factors continue to affect the current market, including:

  1. Values are highly concentrated, creating aggregation issues.
  2. Insured values are highly focused in areas with heavy cat exposure (e.g., wind and wildfire).
  3. Scale is required to control costs relating to loss mitigation and disaster response.
  4. Clients’ high expectations may lead to the possibility of reputational damage for insurers around claims.
  5. Large line sizes are needed, particularly for the ultra-high-net-worth sub-segment.
  6. There is an issue with perceptions around fraudulent claims.

In addition to the growing rates in the admitted market, the E&S market is facing rate increases of 20% to 150% in “high-exposure” areas due to inflation and unpredictable peril losses. In areas such as California, Florida, and Long Island/Hamptons, we see high-net-worth homes being hit the hardest. Where a single insurer may have taken on the full limit in the past, they now can’t even offer a quote.

What’s Next?

As unexpected weather-related events, inflation, and regulatory limitations continue to impact high-net-worth homes, it seems there is simply too much liability in insuring a client for the total value of their property. With homes valued in the tens of millions, an insurer is willing to cover only  10% to 30% of the estimated value to avoid substantial losses, and homeowners are accepting those lower limits. Why? Location. People understand the risk of owning a home in an area prone to bad weather and natural disasters, and are willing to accept limited coverage for that luxury. 

Dayton Ritz + Osborne Insurance proudly serves the Hamptons area. Call today at 631-324-0420 or visit our website.