As housing prices skyrocket, experts and homeowners are trying to understand if this “bubble” will burst, what it means for the year ahead, and how insurtech can help us in this climate of extremes. Matic’s new
In contrast, homeowners under 30 have been activated by the pandemic—they’re taking advantage of low interest rates, getting proactive, and taking risks, making them significantly more likely to sell and refinance than their older counterparts. The report’s findings show that 48% of homeowners ages 21-29 are planning to sell their homes in the near future, in contrast with only 18% of those over the age of 60.
After two years of pandemic buildup, we’re watching a great “unwinding” propel the market
First, we need to understand how we got here, to this record-high boom in home values (up
Now, as the economy and workforce finally start to bounce back and seemingly interminable restrictions begin to lift, what we are seeing is the “unwinding” of that buildup. The floodgates have opened, propelling home price gains to their
Over the past couple years, home price appreciation (HPI) has moved at a larger percentage than we typically see year-over-year. There are two reasons for this. One is lower rates and therefore better affordability. The second is that there was more money being spent in the housing market. With quarantine restrictions and the rise of remote work, people put more towards buying a home because they no longer had to spend on things like commuting, traveling, or eating out. They had more liquid assets available to invest and this helped to drive prices up.
It’s a changing landscape for homeowners and buyers—can insurtech keep up?
Insurtech may be lagging in its bid to catch up with the changing needs generated by this unwinding. There have been some shifts in the auto insurtech space, but there have not been many major strides made in actuarial innovation when it comes to homeowners insurance.
Actuary models are making adjustments in replacement costs, but this in response to inflationary pressures on goods and services rather than trends related to homeowner behavior. Actuarial innovators need to be asking how the industry can leverage tech to better understand risks or inputs. For example, in the auto space, we have seen the growing prominence of UBI tech—everyone has a cell phone and location and inertia tracking in car component technologies are now standard installations off the factory line.
When it comes to housing, satellite imagery and smart home devices promise to help support risk evaluations and reductions, but the results have not lived up to that promise. It’s also important to consider how risk may be impacted by lifestyle shifts post-pandemic. What do risk adjustments look like for those who are working from home instead of commuting to the office? Frequency and severity of claims are likely to be affected when a homeowner is more frequently in the home. Leveraging tech can help us track and respond to these effects such as, measuring break-in rates or fire extinguisher purchases relative to an owner being onsite. It can also help us understand the correlation of plumbing failures to increases in dishwashing and ultimately predict leaks before they occur.
We are seeing some changes in the cost of homeowners insurance, but, as has been the case for a while, these changes are driven by fluctuations in weather and climate. Lumber is a prime example of climate-influenced supply and demand pressure shifting the models, with prices up more than
Comparatively, the increase in the cost of auto insurance is the result of a growing desire for more innovative ways to offer coverage and the steep decline in available cars. Prices for cars have continued to go up, and replacement of cars is based on the supply of cars, as opposed to the cost of replacing the materials inside of the car. In losses for cars, insurers buy replacements and in losses for houses, they build replacements.
While replacement costs are related to housing prices, they're not reciprocal—they're decoupled. Replacement cost and market value represent distinctly different value models; the cost of the house is not the cost of replacement.
Ultimately, insurtech has yet to see the kind of innovation that will be necessary to ride out this unwinding and harness the potential of ongoing changes in how young people buy and own. “Booms” require agile, atypical shock-absorption from insurtechs. Those who want to succeed need to be strapped in for the ride.