Yes, Homeowners Insurance Is Your Concern

Homeowners insurance isn't what it used to be, and it's not currently something that life and annuity advisors can ignore.

The traditional model of homeowners insurance, which assesses risks based on historical data to determine price, has been disrupted by multiple factors.

For one, the escalating frequency and intensity of natural disasters, such as wildfires, hurricanes and floods, have caused unprecedented damage, forcing insurers to recalibrate their risk assessments.

Consequently, many insurance companies have begun to withdraw from high-risk areas or have significantly increased premiums, leaving homeowners in regions like California and Florida with fewer options for coverage.

Even outside the obvious high-risk areas, rising, high-cost claims have inflated insurers' loss ratios, hurting profitability. This has forced many insurance providers to adopt stricter underwriting standards and increase premiums to maintain financial viability.

For your clients, this means that insuring their homes may now be difficult.

The Threats

Here are three factors to consider when talking to high-net-worth clients about this issue.

1. Erosion of Affordability

Wealth planners must anticipate the possibility that clients may struggle to secure coverage for their homes, potentially leading to an erosion of wealth if properties become uninsurable due to escalating risks.

Avoid letting a client respond by "going bare," or doing without homeowners insurance.

2. Reduced Property Values

The perception of heightened risk in certain geographic areas can lower property values, reducing clients' net worth.

Life and annuity-oriented wealth planners must consider strategies for mitigating this risk, such as using diversified investment portfolios or other arrangements to help clients offset potential declines in property value.

3. Inadequate Risk Preparedness

As homeowners insurance becomes harder to obtain, insureds may find themselves underinsured or lacking coverage for specific perils.

This increases the importance of proactive risk management strategies, such as using shutters or new types of roofing to increase high-value structures' ability to get through natural disasters.

Ways Wealth Planners Can Help

As the challenges of securing homeowners insurance continue to intensify, wealth planners must act as strategic advisors, guiding their clients through uncharted territory.

Here are three ways to guide your high-net-worth clients.

1. Communicate early and clearly.

The process of securing insurance coverage should not be a reactive measure but a proactive one.

Advising clients to seek quotes before acquiring an investment property or vacation home can help manage expectations.

This practice effectively reduces the likelihood of insurance sticker shock, enabling clients to factor in insurance costs as an integral part of their budgeting.

With early engagement, advisors gain the opportunity to collaborate with clients in understanding the nuances of their acquisitions, ensuring a holistic approach to asset protection.

2. Explore other options for coverage.

Wealth planners may want to help clients consider alternative risk-transfer mechanisms, such as policies for specific perils, captive insurance, parametric policies or specialized catastrophe bonds.

3. Promote preventive measures for long-term protection.

Advising clients about region-specific preventive measures fosters a culture of responsible asset protection.

Wealth planners can do this by recommending:

Proper maintenance of roofs.

Regular testing of devices that prevent water and sewer backups during power failures.

The installation of indoor fire sprinklers and automatic water shutoff systems, to add layers of defenses against fire and water damage.

Use of heat sensors connected to the fire department, to avert catastrophic losses by improving department response times.

The Challenge

The escalating challenges surrounding homeowners insurance availability are poised to modify the game plan for life- and annuity-oriented wealth planners and their clients.

Wealth planners must remain vigilant in monitoring emerging trends, staying informed about the evolving risk landscape and proactively adapting strategies to safeguard the financial well-being of their high-net-worth clients.

By devising innovative approaches to mitigate risks, diversifying investment portfolios and exploring unconventional risk-transfer mechanisms, you can help high net worth clients navigate the complex reality of costly homeowner's insurance and secure their financial futures in an unpredictable world.

Forrest Broyles is a broker with HUB Private Client.