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Helping First-Time Home Buyers Purchase the Right Coverage

Buying homeowners insurance can be seen as just one more transaction to be completed before closing on a home. Agents can set themselves apart by educating clients on what they're buying.
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helping first-time home buyers purchase the right coverage

Over the past 18 months, the country has experienced a lot: a global pandemic, wildfires in the West, a record-breaking Atlantic hurricane season that included six major hurricanes with wind speeds of over 111 mph, floods, ice storms and more. Yet, despite what should be a year most would like to wipe from memory, one segment of the economythe property markethas continued to thrive after an initial lockdown period, which has directly impacted the homeowners insurance market.

“We've seen the number of claims and the severity of homeowners losses go down, similar to the way we saw auto accident frequency going down," says Bill Gatewood, corporate senior vice president, national personal insurance practice leader, Burns & Wilcox. “But while auto accidents were reduced because there were fewer people on the road, we've seen positive loss ratio trends in the homeowners market because more people were at home all the time, cutting down on both the number and severity of claims."

However, “unlike the auto insurance market, the property insurance market remained strong throughout the pandemic," says Dave Pratt, property insurance general manager, Progressive Home Insurance. “Home sales are the main driver of homeowners insurance shopping and sales were very strong during the second half of last year. The market remains busy, so we're seeing solid growth in new home policy applications."

The pandemic created a situation where people—working or attending school from home—needed more space to accommodate family members. While some homeowners renovated their basements or added an extension, others jumped into the property market to gain more square footage. Additionally, consumer saving soared due to lockdowns and 31% of millennial first-time homebuyers looking to buy a home in the next 12 months were able to save extra money toward a down payment during the COVID-19 pandemic, according to a Redfin study released in May.

Couple this trend with record low interest rates and the result is a roaring housing market causing a homeowners insurance market boom.

For first-time homebuyers, buying a home “is probably the single biggest investment they've made in their lives to that point, and it may end up being the single biggest investment they make," Gatewood says. “Those agents who set themselves apart and educate their clients on what they're buying, on what their exposures are and the coverages that they can put in place to help minimize those exposures are the ones who always separate themselves from the order takers who are just processing transactions."

And while buying homeowners insurance can be seen as just one more transaction that has to be completed before closing on a home, the offer of a quote, however well intended, from a loan processor may not provide the needed coverage. This is when an independent agent can add the most value to a relationship and clear up confusion.

“A great agent can increase a customer's confidence by fully explaining how the coverage works," says Carol Anderson, personal lines property leader, assistant vice president, Foremost®, a Farmers Insurance® Company. A few important topics to consider are:

  • Cost to rebuild the dwelling and other structures.
  • Cost to replace personal belongings.
  • Mitigating the cost incurred when the customer is unable to live in the home due to damage.
  • Protecting the customer's assets in liability situations.

“First-time homebuyers may not understand the difference between the cost to rebuild a dwelling and the purchase price or market value. The agent plays a role in helping them establish the right amount of insurance to protect the property," Anderson says.

In addition to the coverage provided by a homeowners policy, agents must make sure their customers understand that a homeowners policy does not cover flood. The average flood loss claim in the U.S. is $50,000, according to the Insurance Information Institute, yet only 15% of American homeowners purchase flood insurance.

“There are some people who get triggered to buy flood insurance because it's required by their lender, but even in other cases when the lender doesn't require it, that doesn't mean that the homeowner is not at risk," Gatewood says. “During many of the big floods that we've seen—like from Hurricane Harvey and the flooding we saw in West Virginia a couple of years ago—a lot of people who suffered major flood damage were not inside a designated flood zone."

“We recommend that agents help first-time homebuyers understand what is covered under their homeowners policy and what is not," says Jim Hyatt, senior vice president, personal lines, Arbella Insurance Group. “A single-family home may have certain connections to sewer lines and other utilities, but at what point do those connections become the responsibility of the homeowner versus the municipality or utility company?"

“The same goes for condo owners, such as what's covered by the master policy and what is the responsibility of the individual condo owner," he adds. “It's important that the agents fully review these coverages so that their customers can make informed decisions about their insurance."

Olivia Overman is IA content editor.