Financing and homeowners' insurance: How do they fit together?
Historically, contractors and homeowners could rely on homeowners’ insurance to cover most or all the expense resulting from weather, fire and other disaster-related damages. Today, however, factors such as climate change, severe weather, and rising material and labor costs have prompted insurance companies to increase premiums and reduce payouts.
The U.S. Department of the Treasury’s Federal Insurance Office (FIO) released comprehensive data on homeowners’ insurance “showing that it is becoming more costly and harder to procure for millions of Americans as the costs of climate-related events pose growing challenges to insurers and their customers alike.” Report here: Analyses of U.S. Homeowners Insurance Markets, 2018-2022: Climate-Related Risks and Other Factors (January 2025)
Among the report’s key findings:
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Average homeowners’ insurance premiums per policy increased 8.7 percent faster than the rate of inflation in 2018-2022, according to the data analyzed.
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From 2018 to 2022, consumers living in the 20 percent of ZIP Codes with the highest expected annual losses to buildings from climate-related perils paid $2,321 in premiums on average, 82 percent more than those in the 20 percent lowest climate-risk ZIP Codes.
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Policy nonrenewal rates also are higher in areas with the highest expected losses from climate-related perils, which indicates that consumers faced decreasing availability.
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Climate change is making it more costly for insurers to operate. The paid loss ratio, which reflects how much insurers paid for claims relative to what they received in premiums, was highest in the highest risk ZIP Codes. These areas had a higher frequency of claims and severity of claims, about $24,000 on average compared to an average of about $19,000 for lowest risk areas.
The changing environment in homeowners’ insurance can make an already-stressful recovery process, even more troubling, time consuming and costly, with additional expenses burdening homeowners. You may be hearing these types of stories more-and-more from your Customers, and the availability of a fast, easy, and reliable financing solution can make rebuilding their homes (and, therefore, their lives) a simpler and less worrisome process.
For example, financing can serve as a supplement to what insurance is covering, such as paying for home repair projects before a consumer meets their deductible or paying for additional repairs above and beyond what insurance may cover. Financing can also act as the sole funding solution for a consumer whose lack of coverage would leave the homeowner without the ability to carry out a home repair project. Finally, there are times a homeowner may want to upgrade their home repair project beyond what would be paid for by the insurance company, and financing allows the consumer to complete their ideal project, creating Customer satisfaction from all angles.
While financing can serve as an important source of funding for home recovery projects following damages to a person’s home, it is important that you realize that people suffering from a natural disaster or other unexpected events may feel vulnerable or afraid. Therefore, you and your sales team should be aware of these situations and avoid any sales tactics that may be interpreted as pressure sales or scare tactics.
If you’re not already doing so, consider financing as a new type of solution for home recovery projects. Working with the GreenSky® Program and by being sensitive to the needs of your community suffering loss, you can provide helpful options to get your Customers back on their feet.