Property Casualty Insurance

Property casualty insurance has become more difficult and expensive for residential as well as commercial properties. Insurance is necessary to secure a mortgage, and lenders require ongoing coverage. Availability and affordability of insurance are critical to the continued growth of homeownership and the real estate industry, which has been the pillar of the economy.

Impact on Homeownership and Real Estate

Increases in insurance premiums are preventing some potential homebuyers from qualifying for a mortgage and buying a home; current homeowners are also put in jeopardy by the increased costs of insurance.

The average cost of homeowners insurance rose by about 8 percent in 2002 and is expected to rise another 9 percent in 2003, and even higher in some states, according to the Insurance Information Institute.

Some buyers are getting coverage from alternative carriers not regulated by insurance commissioners; such coverage is obtainable only at very high rates.

Owners of multifamily properties are facing lender demands for additional insurance coverage, such as additional liability insurance beyond what has been traditionally required.

The Causes

In the past few years, insurers have experienced a surge in the number and size of property casualty claims from a variety of causes. The property-casualty insurance industry posted a $7.9 billion net loss in 2001, its first-ever net loss.

The insurance industry estimates that 9-11 terrorism-related claims will total from $40.2 billion to $70 billion.

The decline of the stock market took toll on insurance companies' investment portfolios. During the 1990s, insurance companies competed with one another by using premium pricing; record stock gains made up for losses in premiums. Investments have dried up, and loss of that revenue means premiums must increase.

Insurance Company Response

Companies have reduced the number of policies they are writing; one of the largest companies did not write new policies in 30 states late last year, and is only now returning to some of those states.

Companies are tightening underwriting criteria not only for potential policy owners but also for the properties themselves. Homeowners with poor credit or who file "too many" claims could find their insurers will not renew their coverage. Underwriting requirements on properties have been tightened to ban properties with prior water damage.

What NAR Is Doing

NAR has appointed an insurance task force to examine insurance issues affecting consumers and the industry, and make policy recommendations to the Board of Directors.

Since insurance is regulated at the state level, NAR is focused on serving as a clearinghouse for state and local REALTOR® associations.

Coalition-building efforts are under way at the national level among housing and consumer groups aimed at finding solutions to insurance problems.