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3 Habitational Insurance Trends Driving Need for Property Condition Intelligence in 2022

Written By CAPE Analytics

Steep losses that have forced insurers in the habitational property market to be far more cautious about underwriting risk, reduce capacity, or shutter operations completely have not been enough to obscure two indisputable facts. The first is that this $22 billion market—7% of the $314 billion commercial lines market—is too large to ignore. The second is that insurers will need to embrace AI-enabled property condition intelligence to increase efficiencies to boost their chances of success in this hardening sector.

Economies of scale that once buoyed this market have largely evaporated, with individual property owners now buying cover directly through carriers instead of through programs. This has created a low margin business and limited investor appetite for this class.

For underwriters, a lot of work is required relative to premium size. With many HOA, condo, or apartment properties now generating just $3,000 to $7,000 in annual premiums, and typical underwriting expense ratios hovering around 30%, insurers will increasingly need to leverage high-quality intelligence to price risk efficiently, accurately, and profitably.

To underscore some of these dynamics, let’s look at some of the challenges facing the habitational property market in 2022, and how a new generation of property analytics technologies can give insurers a competitive edge.


The Climate Crisis Hammering Habitational Cover

On February 28, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) issued its latest warning about “an Atlas of human suffering” on the horizon due to increased risk of wildfires, floods, tornados, and other weather-related events.

After suffering insured losses of more than $112 billion from natural catastrophes in 2021, the industry is already facing daunting payouts in 2022. In January and February, bomb cyclones left hundreds of thousands without power amid bitter cold temperatures, while tornados ripped through the central and southwest US—threatening insured losses rivaling last year’s record-shattering $15.1 billion Winter Storm Uri.

Relative to other commercial lines, habitational properties are exposed to the worst of these risks in part because of lighter materials used in construction, according to As a result, some habitational property insurers have restricted or stopped underwriting risks on homeowners’ associations, multifamily apartments, student housing, senior care properties, and more. And others now offer only E&S lines, with many dropping unattractive risks, increasing rates as much as 20%, or adjusting policy terms, according to Insurance Business Magazine.

With renewals being pushed aggressively, underwriters remaining in the habitational sector are understaffed and swamped with submissions.

Unfortunately, repricing portfolios to avoid long-term exposure to catastrophic events isn’t realistic when the historical data used to model that risk is based on climate patterns that no longer exist. And as Insurance Journal reports, broad brush risk assessments and blanket restrictions seen in the habitational market result in a lack of policy customization that creates a scenario where good risks end up subsidizing the bad.


Inflationary Pressures Pushing Up Loss Ratios

Thanks to the highest inflation level in nearly half a century, the difference between what a property is valued at bind and what it costs to repair or rebuild it, is skyrocketing. This is especially problematic for properties with full replacement cover. Calculating replacement costs relative to property valuation is always complex, but never more so than during periods of rapid inflation.

At the same time, current supply chain disruptions and rising costs for labor and materials are pushing insurer loss ratios even higher while extending the time it takes to make repairs or rebuild properties.

In this market, inflation is outpacing the Consumer Price Index (CPI). The cost of lumber, for instance, is nearly 40% higher than in 2019. And other construction materials such as steel, concrete, and gypsum are also showing above-average price increases. Underreporting valuation, a perennial problem, could further threaten insurer profitability.


The Rising Risk of Growing Inventories

Thanks to a protracted housing shortage, the US needs to build 4.6 million new housing units by 2030 to keep up with growing demand. While this means the habitational market is poised for growth, it comes with additional challenges.

New construction is a big part of the equation. But everything from old office buildings, to aging military bases, to strip malls is being eyed for conversion into apartments or other forms of habitational dwellings that aren’t always in outstanding condition.

In fact, property maintenance at older habitational properties is declining, partially because investors want to move up-market. Instead of repairing or replacing roofs or upkeep themselves, owners are filing insurance claims as a source of capital to fund these efforts. Over time, properties’ class declines and claims become more frequent.

Inflation can play a role here, too. Bringing older properties up to code and the cost of hard-to-replace fixtures can further erode profitability. As a result, insurers are putting previous claims and updates to electrical, plumbing, and roof structures under a microscope. Only by getting a better grasp on loss potential can they avoid insuring properties that are likely to file a claim almost immediately.


Enter: Property Condition Intelligence

In this business environment, habitational property insurers will need to adopt the same kind of property condition intelligence that enables other personal and commercial lines to instantly select and price risk accurately. They need more complete COPE assessments at the time of submission review and need more efficient underwriting review processes.

Today’s most robust solutions leverage high-resolution aerial imagery, computer vision, and other forms of AI to deliver up-to-date property condition data on properties nationwide, including single- and multi-family homes, condos, and HOAs, in addition to other risk factors, from weather hazard to crime levels—all in one convenient application.

Instead of fragmented, time consuming, and resource-intensive intelligence gathering through in-person inspections or out-of-date tax records, these solutions make habitational property condition data instantly available via API or web application.

Using CAPE’s own offering as an example, our solution offers comprehensive property condition intelligence on habitational properties at time of quote—including loss-predictive property attributes such as our Roof Condition Rating, as well as wind, hail, wildfire, and flood risks. It also includes granular details for property valuation, surrounding property conditions, and data for generating single- or split-deductibles for specific risks.


To learn how CAPE can help enable transformation of your commercial and habitational property lines or to schedule a demo, click here.