Changing Home Insurance and its Impact on St. Louis Real Estate
The world of homeowner's insurance is undergoing a significant transformation, particularly when it comes to older roofs and knob & tube electricity. Traditionally, homeowners have relied on insurance policies to protect their homes from unforeseen events, offering a sense of security and financial relief. However, recent developments in the insurance industry have led to a paradigm shift, making it harder and more expensive to secure coverage. This shift has profound implications for homeowners, especially those with older homes that have outdated systems.
Premiums are skyrocketing (50%-100% increases over the last 3 years) for a lot of reasons. The bottom line with insurance companies right now is that they do not want to write new business because it’s unprofitable. In St. Louis and much of the country, this is due in large part to the growing number of claims made for hail-damaged roofs.
Insurers have handed the keys to underwriting telling them to bring profitability out of the red and into the black, resulting in significant changes to eligibility and coverages for consumers.
The Residential Real Estate Purchase Contract in St. Louis typically allows the buyer 10 days to ensure they are able to secure an insurance policy on their new home. In this new climate of hypervigilant underwriting guidelines and increased scrutiny from insurance companies, real estate agents need to put more strategy around this contingency and be proactive about protecting their clients from the cost of replacing systems that now may be considered uninsurable.
The Changing Landscape
In recent years, the landscape of homeowner's insurance has evolved dramatically. Two critical factors contributing to this evolution are the increased scrutiny on older roofs and the presence of knob & tube electrical systems. These elements, once considered part and parcel of many older homes, are now being closely examined by insurers due to their potential risks. Homeowners with such features are discovering that obtaining insurance coverage has become a daunting task, often accompanied by higher premiums and less favorable terms. Insurance companies have begun pushing back on writing just a homeowner’s policy without an accompanying auto policy, swinging the pendulum back toward requiring bundled products in order to receive any coverage at all.
Exterior Home Inspections: A New Normal
One of the notable shifts in the insurance landscape is the growing emphasis on thorough exterior home inspections performed by the insurance company. Insurers are increasingly relying on these inspections to assess the condition of a property before issuing a policy. They are particularly relevant for homes with older roofs and those which may have deferred maintenance of the exterior building elements. Insurers are now doing aerial and satellite inspections looking for overhanging branches, debris in the yard, and siding/gutter issues, in addition to looking at the roof. They are now aggressively evaluating the potential risks associated with these conditions, resulting in more consumers being denied coverage.
Older Roofs: A Matter of Risk
As the landscape around homeowner’s insurance shifts, roofs are the single hottest topic of conversation. The scrutiny over older roofs stems from the understanding that they may be more susceptible to damage from extreme weather events, wear and tear, and potential leaks. In fact, they may already be storm-damaged at the time of purchase. Insurers are concerned about the increased likelihood of claims arising from roof-related issues in homes with roofs more than 15 years old. As a result, some homeowners are now required to provide evidence of regular maintenance, repairs, or even replacement before insurance coverage is granted. This demand for proactive maintenance places an additional financial burden on homeowners who are already grappling with rising insurance costs.
Nearly every company has gone to not insuring a home with a roof that is over 15 years old and, within the last week, I’ve heard this is starting to get pushed down to nothing over 10 years old.
Other companies have stopped issuing new policies altogether. Their cost-reducing strategy is to go through their book of business and cancel everything they think poses the threat of a large claim in the future. Missouri is actually one of the best states for insurance right now. States like Kansas and Illinois, which are Personal Insury Protection states, have higher rates of fraud and are dealing with far worse conditions. Homeowners in coastal states and those which frequently have wildfires are suffering badly, too.
Knob & Tube Electricity: A Relic of the Past
Knob & tube electrical systems, commonly found in homes built before the 1950s, are another focal point for insurers. These outdated systems pose fire hazards due to their lack of grounding and insulation. Insurers are now demanding that homeowners upgrade their electrical systems to meet modern safety standards, or else face the prospect of limited or denied coverage. The cost of rewiring a home can be substantial, further exacerbating the financial strain on homeowners seeking insurance.
Be careful when an insurance agent tells you that knob and tube is not an issue. Every insurance company I know of no longer writes policies covering knob & tube. Just because it may not be asked in the application doesn't mean they won’t use it to deny your claim in the future. It is buried deep in the underwriting guidelines and is an "Unacceptable Risk.” If your home has knob & tube electricity, disclose it when shopping for insurance. While it may make the process more difficult and/or more expensive, it’s worth the peace of mind in knowing you aren’t risking being denied because of it in the event of a catastrophe.
It should be noted that the majority of older homes in St. Louis still contain some knob & tube components and while they are not generally regarded as unsafe to live with, as homeowners we must contend with the policies of insurance companies. If you have knob & tube, don’t panic but do make sure you are protected from an insurance standpoint.
Navigating the Changing Landscape
Insurance companies now are not budging on claims. Gone are the days of them shelling out money left and right just to get the claim closed and move on. Roofs, again, are scrutinized particularly hard.
Insurance companies are looking at their concentration within each coverage area to ensure they aren’t overexposed if there’s a large weather event. This means that a home may be easily insurable and the premium may be reasonable one month, and the next it be considered uninsurable.
For homeowners with older roofs and knob & tube electrical systems, navigating the changing landscape of homeowner's insurance requires careful consideration and strategic planning. Seeking out specialized insurers who understand the nuances of older homes and their unique challenges can be a valuable approach. Additionally, homeowners should proactively address maintenance and safety concerns, providing evidence of routine upkeep and upgrades when applying for coverage.
Conclusion:
As homeowner's insurance undergoes a transformation driven by heightened scrutiny of older roofs and knob & tube electrical systems coupled with a drive to remain profitable, the implications for affordability and accessibility are significant. The landscape of insurance coverage is shifting, demanding greater attention to home maintenance and safety measures. While the challenges are undeniably daunting, homeowners with older homes can navigate this changing terrain by staying informed, engaging with specialized insurers, and taking proactive steps to update and improve their properties.
Other than knob and tube, much or most of this, likely, is temporary. Hopefully, it will end sooner rather than later. The word on the street, right now, is that companies may start looking at things again in mid 2024, but likely will continue with this course of action through 2024.
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