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