New construction in May dropped about 10 percent from April, according to the U.S. Commerce Department, but the rate is above levels last year at this time. Sales of new and previously owned homes dropped once the home buyers' tax credit hit its April 30 deadline.

Simply put, it is not a “high-growth period” for the homeowners insurance market, according to Robert Hartwig, president of the Insurance Information Institute. However, the market “by and large is quiet stable,” he said.

The homeowners insurance market is largely competitive–with the exception again being on the catastrophe-prone coast–as some carriers look to get creative with select enhancements and campaigns to tie in auto insurance in a package with home coverage. But insurers can no longer count on such options, as policyholders look for the best price in this tough economy, market observers note.

“Insurers can have no expectation of holding onto auto,” Mr. Hartwig said. “The homeowners product must be able to stand on its own. The attention turns to broader coverage and relationships with agents.”

In the meantime, insurers look to get the appropriate rate to match the risk and costs. It appears as though insurers are having success in this regard, with premiums rising about 2 percent to 3 percent to reflect the normal rate of increased repair and rebuilding of damaged homes.

On the coast, some companies are seeking–and getting–low double-digit percentage increases, Mr. Hartwig reported.

Although the industry has not faced a major hurricane since Ike and Dolly in 2008, catastrophe risk remains prevalent and losses within the last year are “higher than one would believe,” said Mr. Hartwig.

The Midwest remains very volatile as well, with losses coming from hail, lightning and tornadoes. “Insurers have been looking to better price this risk,” Mr. Hartwig noted.

For some time it hasn't been one singular devastating event but a series of small losses that “when you add it all up, comes to some serious money,” according to Mr. Griffin.

The industry had a combined ratio of 105.3 in 2009–far better than the 115.2 figure the previous year, but still an indicator of the accumulation of smaller loss events, said James Auden, managing director of insurance for property and casualty at Fitch Ratings.

“Losses have occurred in places perceived to be havens for stable business,” Mr. Auden said. “The industry has found out these areas are underpriced for the risk.”

Unlike 2005, when an active hurricane season triggered reinsurance claims, the smaller events of the last calendar year are not enough for reinsurance to kick in, leaving homeowners insurers to solely bear the losses, Mr. Auden observed.

Recently Conning Research & Consulting released a report that said the reserve positioning in the p&c industry improved slightly in 2009 even after releasing $18.6 billion in reserves during the year. The industry research firm said the improvement could be related to a slow-down in the economy and the trend could reverse with an economic recovery.

Foreclosures and policy lapses have not had the effect on the homeowners insurance market one might think. In the case of a policy lapse, the lender takes out a “force place” insurance policy–a much more expensive product billed to the homeowner, Mr. Hartwig noted. Therefore, the premium doesn't disappear.

Mr. Auden said he believes the current soft market–average premiums declined slightly the last six months–will continue throughout 2010, assuming there is no major market dislocation. Premium volume has also dropped slightly as homeowners look to reduce coverage to coincide with the shrinking values of homes.

However, this cost-saving practice is not recommended, according to Mr. Griffin.

“If a homeowner reduces coverage, we worry about whether they will have enough insurance should something happen,” he said. “The price you can get for your house and the price to rebuild it are different.”

Competition has also caused the downward trend in premium volume, Mr. Griffin added.

The industry is also keeping an eye on a stalled effort in Congress to extend the National Flood Insurance Program. The Senate on June 17 voted down a bill that included the program's extension. No new policies can be written until this issue is settled. This means home buyers who need the federal insurance to close on the purchase of a home are unable to obtain it.

“The homeowners [insurer] market sells and services these policies, and it obviously provides standard homeowners policies to these potential buyers looking to move in,” Mr. Griffin pointed out. “It isn't an enormous issue, but it is a stumbling block for a lot of people and the industry as we really get into the hurricane season.”

Should the forecasters calling for an active hurricane season turn out to be right, the market could swing quickly rather than steadily, industry onlookers predicted.