Predicting the future of home insurance prices

In the conversation around housing affordability, the discussion is often reduced to prices and interest rates. But there’s an equally powerful force reshaping the property landscape: rising home insurance prices and property taxes. In 20% of U.S. metro areas, these costs account for up to 40% of a homeowner’s monthly mortgage payment.

In recent years, the average cost of home insurance premiums has increased dramatically, with some states experiencing spikes of more than 50% since 2020. With premiums reaching new heights, sudden escrow shocks are destabilizing portfolios, increasing foreclosure risks, and driving up the cost of doing business.

What affects homeowners insurance premiums?

So, why are home insurance premiums rising? To answer this question, we must look at the intersection of climate risk, macroeconomic inflation, and institutional pricing structures.  

• ‍Extreme weather events: The combined costs of large-scale natural disasters have increased by over 53% in the last decade. Frequent, severe events like wildfires, hurricanes, and floods create massive financial losses for insurers – and properties in vulnerable zones face steep price hikes.
• ‍Surging reconstruction costs: Driven by supply chain constraints and rising labor rates, the replacement cost of damaged properties has jumped 40% in five years. Based on a recent survey, 72.9% of homebuilders said the cost of construction materials increased by up to 15% in the last year alone.¹
• ^‍Granular underwriting: Increasingly, modern insurance companies price policies based on the precise risk of an individual property rather than pooling high-risk and low-risk homes together.² This means properties that sit side-by-side on a residential street could have drastically different insurance rates.
• ‍Reinsurance pressures: Insurance companies buy their own insurance to cover catastrophic losses. As global disasters escalate, the cost of this reinsurance goes up, and insurance companies pass those expenses to consumers.³

Since 2018, the average premium per policy increased across every region, with inflation-adjusted increases ranging from 18.3% to 43.4%.

The domino effect on property professionals

The escalating cost of property insurance creates a challenging domino effect that impacts the entire housing system:  

• ‍Servicers: Most borrowers roll insurance payments into escrow accounts managed by servicers. When premiums jump, it creates shortages. Servicers must pay the full premium on time to keep the policy active, even if the borrower’s escrow account lacks the funds.
• ‍Lenders: When homeowners insurance premiums go up, the monthly cost of owning a home also rises. This increases the risk that homeowners will fall behind on their loan payments. Surging insurance costs also decrease local property values, which weakens the collateral behind the loan.
• ‍Investors: Higher insurance premiums decrease home values and increase operating expenses. Because insurance costs often increase faster than rental income, this can directly cut into profit margins.
• ‍Insurers: Insurers increase premiums to protect their bottom lines – but acquiring a new policyholder costs seven to nine times more than retaining an existing one, so insurance companies need to predict rising premiums to proactively find a way to minimize churn.⁴

Anticipate risk with Premium Forecasting

Historically, the real estate industry has viewed insurance data through a retrospective, state-wide lens. But when risks, regulations, and reconstruction costs can change in a moment, you need more than broad, backward-looking data. You need to know what is coming next.

That’s where Cotality’s Premium Forecasting comes in. It’s a twelve-month, forward-looking model of residential insurance premiums, forecasting prices across tens of thousands of U.S. ZIP codes.  

Built in collaboration with leading mortgage lenders and servicers, our Loan Level Mortgage Analytics (LLMA) database gives us detailed information on principal, interest, taxes, and homeowners insurance trends.

By combining this data with other Cotality datasets – including natural hazard risk scores and the gold standard in replacement cost data – CoreAI turns today’s data into tomorrow’s possibilities, completing the picture of future housing affordability.

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Turn data into foresight

No other organization has the deep, collaborative relationships that Cotality shares with lenders, servicers, investors, and insurers. When you combine those relationships with our unmatched datasets, you end up with more than just a forecast. You get true foresight.

Whether you’re servicing loans, underwriting mortgages, managing portfolios, or setting premiums, Premium Forecasting helps you anticipate portfolio-level costs before they’re past due. It all starts with seeing property from every angle.

Contact us to learn how we can help you stay ahead of the curve with Premium Forecasting.