Home renovations insurance – why the market will still surge | Insurance Business America
A shortage of homes, rising interest rates on mortgages, and pent-up demand from millennials are just a few factors fuelling the spike in home renovations over the past few years. COVID-19 lockdowns also saw many restless homeowners spending on tweaks and upgrades.
Global Market Insights reported most US homeowners (76%) carried out some form of improvement in 2020. The trend continued in 2021 when Americans spent $540 billion at home improvement stores, according to Zippia.
“We’re seeing a huge uptick [in renovations] and it’s been going on for several years,” said Steve Bristow (pictured), senior vice president and head of operations at US Assure. He said many people looking for newer or bigger homes just weren’t finding what they needed and are opting to renovate instead. Millennials looking to buy homes as they start their families are also key segment driving this trend.
“About 60% of the new home market is millennials looking to get into a new home. And even if they buy a home, they might not be able to afford a new one because costs have gotten out of control. They might say: ‘Let’s buy that a little less expensive home, and we can spend some money to renovate it,” Bristow said.
Amid increased spending by homeowners, insurance agents must be aware that a home insurance policy typically does not fully cover a remodel or other substantive renovation projects.
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“What we typically find is that some home insurance policies have strict limitations on what they’ll allow. Maybe if you’re doing a minor kitchen renovation, they’d be okay with it. But if you were gutting three rooms and maybe adding another, there’s a good chance that homeowners’ policy does not provide coverage,” Bristow explained.
Insurance agents should discuss builder’s risk coverage as an option for those who hire a contractor to carry out home improvements, as even small projects can have costly consequences for homeowners.
“I guarantee a lot of homeowners have gone through a renovation and did not seek any additional coverage thinking: ‘We’re just doing a small renovation with the kitchen, everything will be fine.’ But a lot can happen. Suddenly, a pipe breaks, or they cut into a wall and maybe that affects the structure of the home,” Bristow continued.
“And while it really seems simple, just adding some cabinets, replacing a wall, maybe retouching some finishes, but those could lead to large losses that may not have full coverage on them,” he warned.
Agents should help their clients understand what the policy coverage and limitations are, and when they should be thinking about additional coverage for builder’s risk, US Assure said. Some contractors may have a blanket policy that fully insures renovation work, but Bristow noted they’re seeing more homeowners taking over the responsibility of ensuring adequate coverage themselves.
“We’re seeing a big trend over the last 10 years of contractors saying to the homeowner: ‘If you want that insurance, you’re going to need to purchase it.’ Now that really comes into renovations. The builder might have coverage when they build a new home but not have coverage for a renovation project.”
Bristow added: “The builder typically, in all fairness, wants to get the job done. They’re not there to counsel you on what’s covered and what’s not. I think more and more today, we see homeowners and building owners really taking ownership of their insurance policy.”
Home renovation activity will continue to ramp up despite prevailing supply chain disruptions and high inflation. The industry is set for a compound annual growth rate (CAGR) of over 4.1% between 2021 and 2027, rising to $450 billion, Global Market Insights noted. The increase in spending by rental property owners due to surge in rental demand is a critical component of this growth.
US Assure said this makes critical for owners to be fully prepared for all possibilities during a renovation project. “Yes, cost is an issue. But to be able to have that peace of mind that I spent maybe $1,000 to get a policy to cover my $200,000 renovation ensures that there’ll be no issues. If you did have a total loss of all the new materials, those are going to be replaced. And that’s a big deal because when it happens, and they don’t have coverage, people start asking: ‘Why didn’t anybody tell me?’” said Bristow.
For agents, Bristow recommends anticipating the renovation conversation with customers shopping for a homeowners’ policy.
“Right off the bat, I think it’s an opportunity to say: ‘What’s your plan? Is this a new home? Is this an older home? Do you think you might want to renovate?’ They may not do that for two years. But if you get it in their mind that when that time comes, you can have a talk to make sure they have the right insurance, then they’re going to come back to you looking for that policy.”