Home insurance is all about managing risk—specifically the risk of a residential property being damaged or destroyed. For most people, their home is their most valuable asset. If that home is not owned outright, a bank or other mortgage lender has a financial investment in it as well. So, it’s no wonder that purchasing home insurance is a prerequisite for home ownership. In this blog, we will look at the upcoming home insurance trends for 2025 and what you as a home owner can expect.
Potential Risks for Home Owners
The majority of home insurance claims are the result of foreseeable but fortunately rare events, such as fire or natural disasters. Home burglaries and theft or water damage from ruptured pipes can result in the loss of personal property as well as damage to the home. And there is always the risk of a homeowner being held liable for medical and legal costs if someone is injured on the property.
The risks associated with natural disasters vary by geographical region and specific location. For example, while electrical fires and accidental kitchen fires can happen anywhere, wildfires are most common in California and other Western states. Tornados are most common in the Midwest and Southwest, while homeowners in the Southeast worry about hurricanes and tropical storms.
Some risks, most notably flooding and earthquakes, are not covered by the majority of home insurance policies. Buying or building a home on a flood plain or near a fault line may necessitate the purchase of separate flood or earthquake insurance from a company equipped to handle the large numbers of big-dollar claims from a flood or seismic event.
Drivers of Trends in Home Insurance
Trends in the insurance industry are driven largely by the need for insurance companies to maintain sufficient financial reserves to meet regulatory requirements and the expectations of shareholders. In South Carolina, reserve requirements are set by the South Carolina Department of Insurance (SCDOI), following the risk-based capital (RBC) requirements model developed by the National Association of Insurance Commissioners (NAIC). This system determines the minimum amount of capital that insurers must hold based on the risks they are exposed to.
Yes, insurance companies have their own risks to manage. First and foremost, there is the risk that the actuarial projections used to ensure adequate reserves to cover claims turn out to be inaccurate. These projections consider historical claims data, patterns of claims frequency and amounts, and other risk factors, such as natural disasters. Historical data is reliable, but patterns can change over time, and natural disasters are notoriously difficult to predict.
Additionally, the vast majority of Insurance companies (75% to 85% in the Southeast) are for-profit organizations, a large percentage of which are publicly traded and have shareholder obligations. The remainder are mutual insurance companies, which are owned by policyholders rather than shareholders. These companies tend to prioritize policyholders’ interests, often distributing surplus profits as dividends to them.
In either case, insurance companies are subject to the same economic forces and risks as other businesses, including market risk, credit risk, inflation risk, and more. Insurance companies must also adhere to strict solvency requirements imposed by regulators, such as maintaining a certain ratio of capital to liabilities. The cumulative effect of such risks and how insurers manage them is the primary driver of trends in premium costs, coverage options, and availability of coverage.
Trend #1: Increased Cost of Claims
The most impactful trend in homeowner’s insurance today is the increase in the frequency and size of claims. In recent years, home insurance claims in South Carolina and the southeastern U.S. have shown a marked increase, driven largely by the growing number and intensity of severe weather events.
Mt. Pleasant and surrounding areas are particularly vulnerable to hurricanes, tropical storms, and flooding. The city’s low elevation, proximity to the coast, and the many rivers and estuaries in the area make it highly susceptible to storm surges and heavy rainfall. Additionally, Mt. Pleasant’s (and surrounding areas) historic architecture, while beautiful, is more likely than newer buildings to be badly damaged by severe weather.
Over the last decade, major storms like Hurricane Matthew (2016), Tropical Storm Irma (2017), Hurricane Dorian (2019), Hurricane Isaias (2020), Hurricane Zeta (2020), Tropical Storm Elsa (2021), Hurricane Ian (2022), Hurricane Idalia (2023), and Tropical Storm Ophelia (2023) caused flooding (both coastal and in low-lying parts of Charleston and surrounding areas) as well as wind and water damage to homes. It’s too soon to know what the 2024 hurricane season will bring, but meteorologists are predicting a lot of major storm activity.
The number of claims has increased, and so has the dollar amount of each claim. One factor that has been driving up the value of home insurance claims is the inflationary pressure on repair costs (labor and materials), which has been exacerbated by global supply chain disruptions.
Trend #2: Higher Premiums and Deductibles
There are two ways to bring any business’s finances into balance: increase income or decrease expenses. When the number and size of claims increases significantly without a corresponding income from premiums, the cost of claims may exceed the reserves available to pay them. To address such an imbalance, insurance companies may resort to increasing premium rates. In South Carolina, the Department of Insurance must approve any significant rate changes.
Home insurance premiums in the Southeast, including South Carolina, are projected to rise in 2025, continuing an ongoing trend. Homeowners may see increases of 10-15% or more, continuing a pattern of substantial premium hikes due to the rising frequency and severity of natural disasters, as well as inflationary pressures on construction costs and repairs.
Furthermore, insurance companies facing ongoing financial pressures may implement other adjustments to policy offerings to decrease the cost of paying claims. One way to do that is to raise deductibles. Another is to reduce or eliminate certain higher-risk coverages.
Trend #3: Fewer Coverage Options
At some point, rate increases alone may not correct an imbalance between a rising cost of claims and insufficient premium income to pay them while maintaining the legally required reserves. In such cases, it makes good business sense for insurance companies to limit their liability rather than continue raising premium rates and becoming less competitive. Consequently, insurance companies are increasingly eliminating certain coverages in high-risk areas.
In some parts of the Southeast, that means excluding coverage for damage from wind or hail due to the frequency of hurricanes and tropical storms. And most home insurance policies, particularly in flood-prone areas, do not provide financial protection against flood damage. Yet mortgage lenders are likely to require such coverage. In fact, flood insurance is mandatory for homeowners with federally-backed mortgages on homes in high flood risk areas.
That’s why some homeowners in South Carolina may need to purchase windstorm insurance and flood insurance, either as add-ons to their regular home insurance policy or as separate policies from companies that specialize in covering those high-cost risks. The Federal Emergency Management Administration (FEMA) underwrites the National Flood Insurance Program, which provides an alternative to potentially more costly private flood insurance.
Trend #4: Reduced Availability
Homeowners in vulnerable areas may find it harder to secure affordable insurance or any coverage at all as insurers eliminate high-risk coverages and even pull out of some states entirely as the frequency and cost of claims increase.
Tailored Policies with Crosby Insurance Group
The logical conclusion is that homeowners in Mt. Pleasant, South Carolina, and elsewhere in the Southeast should be prepared for higher costs and potentially more limited coverage options going into 2025. But there is an upside, as new insurance products and packages designed specifically for high-risk areas or specialized coverage may become available as insurance companies adapt to an evolving market. Because of this, you need someone who will fight for your claims and find you the best coverage possible for your home. Our expert agents offer personalized one-on-one service to address your specific needs. Agents will guide you through insurance options to find the best possible coverage for your home. Contact us today.
