U.S. Home Insurance Sector Braces for Potential Recession Impact
The likelihood of the United States entering a recession this year has increased, raising concerns about the stability of various sectors, including home insurance. While traditionally considered recession-proof, experts caution that this segment is not immune to economic downturns, and homeowners could face fluctuating premiums.
Why It Matters
The U.S. property insurance sector faces significant challenges, primarily due to the increasing frequency and severity of climate change-related natural disasters. Insurers are grappling with higher catastrophe exposure and rising expenses, leading them to withdraw from vulnerable areas and increase premiums. This situation puts additional financial strain on policyholders.
According to a recent study by the Joint Center for Housing Studies of Harvard University, homeowners insurance premiums rose by 74% from the 2008-2009 Great Recession to the end of 2024, while home prices increased by over 40%.
Image of a man holding his hands over an insurance form and miniature house
Can The Home Insurance Sector Remain Unscathed By a Recession?
Betsy Stella, vice president of carrier management and operations at Insurify, with over two decades of experience in the insurance industry, stated that, “no sector is completely recession-proof.”
Shannon Martin, a Bankrate insurance analyst, added, “Job loss is common in a recession and, historically, carriers have tried to limit their profit loss through stricter underwriting guidelines and layoffs.” She further noted that insurers are increasingly using AI to replace some service and claims roles, indicating that further layoffs are possible if a recession occurs.
What Impact Would A Recession Have on Home Insurance Rates?
During a recession, consumers typically reduce their spending. Martin explained that while prices of some goods may decrease, job losses and reduced wages are also common.
Potential homebuyers may postpone purchases, and securing home loans may become more difficult, causing a slowdown in sales and lower demand for new homeowners’ insurance policies, reducing the insurers bottom line, according to Martin. “Fewer home sales means fewer new policyholders,” Martin explained.
To compete, insurance companies may lower premiums to capture market share. However, a recession could also lead to premium increases. Martin explained, “When homeowners can’t afford to pay for damage to their home out-of-pocket, claim frequency increases. If claims increase or the cost of building materials and labor rises, the cost of home insurance will likely follow.”
Experts also suggest that increased tariffs or restricted trade policies could exacerbate labor shortages in the construction sector, driving up building costs. Mark Friedlander, director of corporate communications at the Insurance Information Institute (Triple-I), stated that economic shifts away from open trade could significantly affect underlying growth and replacement costs for both auto and homeowners insurance.
Friedlander also noted that trade wars could lead to an increase in the cost of covering homeowners’ contents, such as furniture and garments, as well as more expensive construction materials.
An Unprecedented Scenario For The Sector
The regulatory responses to the 2008 U.S. subprime mortgage crisis and the housing crash are also being considered by experts in the field. Martin said, “If a recession were to occur, it may not look like the ones we have had in the past.”
She further stated, “Consumers and companies can be tempted to skirt the rules when money is tight, which is why regulatory measures increase during a recession. However, our country is currently experiencing a trend towards reduced regulation, and the insurance sector is no exception.”
In California, regulators have been subject to criticism for keeping premiums artificially low, and for prohibiting insurers from increasing premiums, which critics contend pushed companies out of the state. Martin noted that states like Florida and Louisiana have given carriers more autonomy to increase market availability, while uncertainty looms about how these changes will impact homeowners during an economic downturn.
