Five insights for underwriting homeowners in the new normal

With a possible end to the pandemic in sight, the potential contours of the post-COVID world are starting to emerge. It may be time for homeowners insurance underwriters to take a break from video call fatigue and set their sights on what’s next.

Here are five observations that may help frame strategic discussions for the weeks and months ahead.

1. Digitization is now a given

The pandemic further established what was an ongoing tilt toward online shopping behavior. A McKinsey survey found that three-quarters of respondents who first used digital channels in 2020 said they wouldn’t go back to the old ways when “normal” life returns.

This shift in preference may sharpen many insurers’ focus on delivering the best online, automated shopping experience. But looking effortless to the customer can demand much exertion behind the virtual curtain. It’s far more than a web interface; it’s data-driven support brought forward in the quote flow to further automate underwriting, from risk assessment to segmentation to pricing. And that means choosing carefully among workflow solutions and information sources to help facilitate easy integration and reliable data.

2. Property condition could be a wild card

Home foreclosures or vacancies may introduce a new element of risk related to poorly maintained or unattended properties. First-mortgage delinquencies declined to just 1.1% in 2020, according to Equifax data. But as forbearances from lenders available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act begin to expire — many of them in April and May 2021 — distressed properties could proliferate. Insurers may need more effective tools to watch their portfolios for such activity, monitor these properties for changes, and be prepared.

3. Change is in the air — and in the house

While some property owners faced financial strain related to the pandemic, others looked to make their nests more comfortable inside and out as they spent more time at home. December 2020 marked the sixth straight month of year-over-year growth in maintenance and remodeling activity, which were up 10.1% and 12.9%, respectively, according to Verisk data. These measures had shown double-digit declines near the start of the pandemic.

Underinsurance and premium leakage can result if this activity, plus hidden risks arising from do-it-yourself projects, aren’t captured by reassessing and recalculating coverages. Policyholder satisfaction can improve in the long run if these changes are found promptly — through reinspection at renewal if needed. When coverage and risk align, unwanted surprises can become less likely at the point of claim. A good place to start may be building permit data that helps pinpoint what work the homeowner has done.

4. Pets, pools, and perils came home in the pandemic

Trips to beaches or even neighborhood cookouts were out of reach for many families once the pandemic took hold. Verisk’s research highlights how many homeowners often compensated in their own backyards. Pool construction was up 41.75% year-over-year between June and August 2020, far exceeding increases in preceding years. Other recreational amenities such as trampolines also multiplied.

Meanwhile, a surge of new pets helped many people cope with isolation — and get outside, if only to walk the dog. These changes are likely to remain, along with their potential for liability risk, as the pandemic subsides. Insurers need to understand and track these shifts at the portfolio and property levels.

5. Renewal time calls for retention strategies

After the initial shock of pandemic lockdowns, the residential real estate market took off, but in specific directions. Stay-at-home orders caused many families to consider the suburbs, or beyond, for more space, according to a study by MYMOVE. After bottoming out in May and June 2020, new and existing home sales spiked by September, federal government data shows. By November, housing starts, up more than 9% year-over-year, the fourth straight month of growth.

Any surge in homebuying raises opportunities for insurers to capture first-time buyers or retain those who are upgrading. Resurgent new and existing home sales appear to have driven homeowners insurance buyers into the market, as Verisk has seen through higher activity in new replacement cost estimates.

One year on, many policies sold during the 2020 buying frenzy will come up for renewal. This block of business raises another opportunity to bolster retention — and perhaps look again at these relatively new risks to evaluate the alignment of segmentation and pricing. Reliable-yet-innovative tools for inspection and change detection, designed to work in a marketplace that’s shifted toward remote transactions, could be critical to these efforts.

Faster to the future

Beginning with the pandemic and continuing into the post-COVID recovery, digital transformation has moved by default to the top of many homeowners insurers’ agendas. At the same time, it’s opening doors for those that are willing to pass through — and successfully address — whatever constitutes “normal” in the months and years to come.

James Roche is vice president of ISO property product management at Verisk. He can be reached at James.Roche@verisk.com.

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• Top 15 writers of homeowners multi-peril insurance in 2020
• Working with new homeowners to better understand coverages