What to Do About the Homeowners Insurance Crisis?

I’m 100% certain that insurance company executives do not understand the significance of the homeowners insurance crisis. They are either caught up in losing too much money on property, or the executives are too immune in their own safer world.

After traveling around the country and listening to agents from coast to coast and border to border over the last three weeks, I’ve heard so many agents pleading for a solution. As one agent told me–and she was emotionally struggling while sharing her story–she has clients who cannot afford a home now because premiums are so high. These elevated premiums are ruining lives.

This industry owes society as a highly regulated public service. It is a public service because buying homeowners insurance is not an option. It is mandatory for everyone who needs to borrow money to buy a house.

I don’t often feel sorry for insurance companies and their woes, but in this case, they have a legitimate point. They cannot seem to make money on property coverage, although some may have in 2025 based on preliminary results. Unfortunately, I do not have access to the data I would need to identify the entire problem, but the issue is not limited to catastrophes. Anyone blaming catastrophes and global warming is either ignorant or floating red herrings.

Even without the data, though, we can work through some scenarios.

The first solution I’ve heard is that the HO-3 coverages must be reduced. There is likely some value in this because most people do not have contents worth 70% of their Coverage A. But in other aspects, coverage needs to be expanded. For example, 10% Ordinance Coverage is very likely inadequate for a majority of homeowners today. I don’t know how a reduction in contents versus an increase in Ordinance would affect net rates, but I’m guessing the average rate would increase because rebuilding to current codes is more expensive than buying a new couch.

The solution many carriers are pursuing is high deductibles, especially for roofs. This is problematic because some of these deductibles, including those for commercial properties, are so high that they render wind/hail claims coverage almost pointless. If a church must have a $100,000 deductible, why buy insurance at all? Deductibles this high require the agent and the insured to assess the insured’s working capital, lines of credit, and overall financial situation because it may not be worth buying any coverage, or at least not any wind/hail coverage.

Another option people without mortgages are choosing is to not buy any insurance. One way to know how many people make this choice is to review a large catastrophe and determine how many claims are filed. In many catastrophe zones, 25% or more of homeowners do not make claims because they don’t have insurance. I’m not sure this is a good solution for society, much less the homeowners.

Another possibility is for insurance companies to get a brain and think through true exposures. But this is wishful thinking, and I’m not being sarcastic. I don’t see evidence of any critical thinking on their part.

The best solution might be to bypass regular insurance companies that refuse to think. Regulators would be wise, if they care enough to act, to listen to agents because the agents I have spoken with are willing to forego portions of their commissions to solve this problem. Solving this problem means they will make less money, and no one else in the equation is offering to take a pay cut.

Why won’t carriers be more proactive? It may be because they have a hidden problem that no one wants to address. Study after study has shown that both personal and commercial insureds’ properties are significantly underinsured. Why is this?

One reason is that the replacement cost estimators have material margins of error. These estimators need to be significantly improved, and I think this is an area essential for regulators to investigate.

Another reason is many agents and insureds do not know how to complete the estimators.

Would insuring property correctly solve the problem, though? Let’s work through the math. Let’s assume we have a $1 million property exposure. The average homeowners combined ratio over the last 10 years (as of 2024) is approximately 102 on a weighted basis, per AM Best data. Excluding investment income, this means carriers lose $20,000.

But what if that property is underinsured by 25%, which is well within the amount that properties are currently underinsured, per the studies I’ve read. Let’s further assume a straight line rate. I’ll make up the rate for example purposes. Let’s use $2 per thousand. The premium would be $2,000. But if it was correctly insured, the premium would be $2,500. That is a 25% increase, which is far greater than the two percentage points underwriting loss. Yet most claims are partial, so losses would not increase in proportion to the increased coverage.

It seems like this is a good solution because insureds would have better coverage, carriers would be more profitable, and the rate per thousand could decrease. The insureds might still find insurance too expensive, so we need to explore more, but as with most things in life, doing the right things the right way goes a long way to solving the endemic problem. Sloppy is rarely a good solution.

Why wouldn’t carriers be more focused on this part of the solution? Many carriers clearly are not focused on it based on all the conversations I’ve had with agents and carrier reps, multiple white papers, and research I’ve done. A strong reason is that insurance companies might not have a large enough surplus. The more property a carrier insures, the more surplus they need. If they are already short of surplus, they might not want to insure property correctly.

This is something regulators owe the public to explore. From what I am seeing in the field, some carriers are seriously underinsuring property. If that gives them a competitive advantage over carriers with surplus insuring property to value, then regulators need to address this because it is not fair to carriers trying to insure property correctly, and it is not fair to consumers.

Before cutting coverage from already underinsured properties, let’s reset and figure out the solution if property was properly insured. I am willing to bet that if property was correctly insured, carriers would be making an underwriting profit. By reducing the rate per thousand, the market might be expanded, bringing consumers back into the market.

Then add good incentives for risk reduction to property, like what has happened in Alabama, and this consistent loser (property) could easily become profitable. This step may require new markets led by people who are smarter and care more, but this is the second part of the solution. If you are an agent frustrated by carriers who won’t fulfill their duty, look to the alternative solutions that are being developed. Some good ones are coming to market so you can bypass regular markets, especially in commercial lines. We owe it to clients to explore creative solutions.

Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com.