Homeowners Insurance: Market Trends, Issues and Problems

The rising cost and diminishing availability of homeowners insurance have become a hot topic in many parts of the country. A number of factors have been blamed for causing the adverse price and availability trends, with insurers and consumer groups offering differing opinions on the causes. Questions also have been raised about insurers' underwriting practices, including the use of a homeowner's credit record and claims history in considering applications for coverage. This paper examines and attempts to explain recent developments in homeowners insurance. We analyze several sources of information on the price and availability of coverage, as well as factor affecting these key market outcomes. Our analysis confirms that the price of coverage has increased significantly in some states and there is evidence that the availability of coverage has also tightened. The data further suggest that rising claim costs and operating losses are the principal factors behind these developments. There is no support for the contention that imprudent investments or "price-gouging" are responsible for higher rates and diminished availability. We conclude that policies that help to control claim costs and encourage market entry, not increased regulation, offer the most promise in improving market conditions for consumers.