Insurance Industry Perils – How Can This Affect Your Transaction
Anyone who has been paying attention to the news will not be surprised to hear the insurance industry has been having some trouble over the last several years. In fact, this one statistic from climate.gov is very telling – In the 1980’s, the United States averaged 3.1 billion-dollar disasters per year (adjusted to 2022 dollars). Between 2020-2022, the US averaged 20 per year. Fires, floods, wind events, hail, and more have been draining the insurance industry of assets.
This is very important information to know when your policy is getting renewed, when you are considering filing a claim, and when you are buying a new home:
Policy Renewal – Insurance companies are trying to mitigate risk. When renewals come up, homeowners with identified risks are being asked to correct them. Roofs with missing shingles, trees with branches overhanging rooflines, yard clutter, peeling paint, and more are all things that insurance companies are looking for homeowners to correct. How do they know? Drive-bys, drones, and Google Earth! My advice? Be proactive and clean-up before your renewal!
Filing a Claim – Past claims can cause a policy to not get renewed, so tread carefully when considering whether to make a claim or not. If damage is tens of thousands of dollars, then that is one thing. But if the damage is just marginally higher than your deductible, think twice. You may want to call your insurance agent to discuss the situation and options before starting a claim. It may not just affect you now, but may also affect the buyer of your home when it is time to sell.
Buying a Home – There are a few things to consider here:
First, getting a home insured is no longer a foregone conclusion that can be taken care of just a few days before closing. Anyone buying a home today should be making the call to their insurance company at the same time they are making their formal loan application – just after the home goes under contract. If for some reason the home to be purchased is very expensive to insure, this is something to know right away. It may affect your debt-to-income ratio and whether you can even afford it.
Homes may have trouble getting insurance based on where they are, how old they are, how it is intended to be used, and previous claim history. They may also use historic imagery from Google Earth to determine how the property has been maintained.
Insurance companies also look at your previous claim history and even your credit history (depending on what is allowed state-by-state) to determine whether they will extend an offer of insurance to you or not.
Furthermore, some lenders require an insurance company to have a certain rating. Find out from your lender what they require and make sure the insurance company meets that requirement.
This isn’t to say the situation is dire, but it does warrant your attention. The insurance landscape is changing and as a homeowner or future homebuyer, it pays to be informed. Reach out with questions!