How do home insurance challenges impact auto insurability?  

It’s no secret that affordability is an issue across the U.S., hurting consumers and businesses alike. And the insurance industry, whose sole purpose is to protect consumers financially, has taken a big hit.   

It’s come to the point where insurers, who have struggled to stay afloat these past few years, are exiting – specifically on the home insurance side – out of areas they deem “uninsurable.”   

Read on to learn more about these home insurance challenges, along with their impacts on auto insurability.  

What are the biggest home insurance challenges? 

Inflation

Inflation is impacting insurers in more ways than one. The heightened policy prices are pushing consumers to shop around for better deals, with 13% of homeowners switching insurance companies because of that.   

Apart from general inflation, social inflation continues to be an issue with the cost of insurance claims outpacing the standard inflation rate.   

Both of these challenges are pushing insurers to continually increase their rates, with average home insurance costs increasing 21% from 2022 to 2023. But of course, this just exacerbates the consumer affordability issue.  

Litigation

In addition to inflation, home insurance carriers are also facing an uptick in litigation. From 2017 to 2021, the number of insurance claims that went into litigation rose 47%.  

While most of these lawsuits involve breach of contract disputes, home insurance carriers are also dealing with a different type of case as the target of roofing scams. These scams involve “contractors” who offer to inspect a homeowner’s roof for damage, and then attempt to sell them a roof replacement that is supposedly covered by their insurance – in which the contract involves handing over the right to file the claim on their behalf. They then file the fraudulent claims and sue if an insurer refuses to pay it out.  

Oftentimes, the cost of disputing these claims outweighs the cost of the claim itself. And these scams are becoming more and more prevalent, especially in areas and times of severe weather like hurricane season in Florida. In 2019 alone, 76% of property and casualty (P&C) lawsuits occurred in Florida.   

Catastrophic weather

Speaking of severe weather, that has proven to be one of the (if not the) biggest challenges for home insurance carriers and their customers lately. The “homeowners’ insurance crisis” has splashed across national headlines, as consumers living in areas prone to fires and floods – such as California and Florida – are left with limited or no options for home insurance.  

While a few smaller insurers have gone bankrupt due to the cost of rebuilding, others have chosen to skyrocket their rates or even pull business out of these areas entirely. This is leaving millions of homeowners vulnerable and struggling to find coverage.  

How do these challenges impact auto insurance?  

While the auto side of P&C has its own long list of challenges to overcome, it’s not siloed – and issues on the home side are affecting auto insurability in several ways.  

Less stable financial backing

Historically, the profit made on the home insurance side has subsidized the not-as-profitable auto side. Without this “buffer,” auto insurers are taking a bigger hit, and the lack of stability is causing them to tighten their underwriting rules and pull back on the number of policies written.  

Losing access to key markets

Additionally, with insurers pulling their home coverage out of high-risk areas (and even entire states), some of them are also ending their auto coverage by default. This is typically the case when it comes to underwriting rules that require an auto policy to be bundled with a home policy.  

And even though “insurance affordability” in the media has focused on lower to lower-middle class Americans, these home insurance issues are impacting middle to high-class earners who live in these expensive (yet, severe weather-prone) areas. This results in auto insurers missing out on key target markets by not offering monoline auto policies.  

How can auto insurance carriers combat these challenges? 

After a difficult few years, many auto insurers have returned to profitability and are looking for new levers to pull to initiate growth. While home insurance challenges are impacting auto’s financial backing and access to key markets, there are innovative tools available to overcome these challenges and drive profitable growth.   

Reach new customers based on driving behavior 

For one, telematics data at scale can also help auto insurers expand their telematics programs and reach new customers based on how risky or safely they drive, how many miles they drive, how likely they are to churn, and more. Informed by the largest driving behavior database tied to insurance claims, the Arity Marketing Platform enables insurers to maximize their marketing spend by reaching new customers that align with their strategies.  

Win over the right customers using driving data 

In today’s rocky economic landscape, consumers have become more aware and anxious about rising costs across rent, food, and everyday items. The insurance industry is no exception to that, which is made clear with record levels of consumer shopping and switching.  

To win new business and retain current customers, auto insurers have an opportunity to leverage the Arity IQ℠ network to increase pricing sophistication at time of quote. With insight into the driving behaviors of over 40 million consumers, Arity empowers auto insurers with a more accurate picture of driver risk to inform smarter decisions – from pricing and underwriting, to claims, to retention and renewal.  

In a time when consumers are consistently frustrated with the constant rate hikes, personalized pricing might just give them the break they need – which, in turn, leads to loyal customers.  

Ready to learn more? Check out our Director of Product Henry Kowal’s blog series, where he shares how telematics data can add value across the entire customer journey.