This article is part of our Hot Insurance Markets for 2012 special feature.
2012 is delivering a sense of growing optimism for the housing industry – a welcomed relief to a market that has been troubled in recent years.
Housing starts in January 2012 were up 1.5 percent from December 2011 and up 9.9 percent from January 2011, according to the Department of Commerce.
Sales of new single-family homes in January 2012 were up 3.5 percent from January 2011.
“This is actually the best sales pace we’ve seen since April of 2010, when the home buyer tax credit was in effect,” noted Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “Moreover, many recent indicators – from our builder confidence surveys to housing starts and permits data and the expanding list of improving local markets – have provided evidence that consumers are becoming more confident about making a home purchase.”
Even so, foreclosures are expected to rise significantly in 2012, according to analysts. Homes in some stage of foreclosure accounted for nearly one in four homes sales during the fourth quarter, said RealtyTrac, an online marketplace for foreclosure properties in the United States.
The high-rate of U.S. foreclosures is helping to drive the growth in what some experts call the brightest spot in the housing sector – multi-family projects.
The apartment and condo sector continues to be a bright spot in the housing market, with the overall index at its highest level in six years, said National Association of Home Builders’ Chief Economist David Crowe. The index measures builder and developer sentiment about current conditions in the multifamily market.
“The rental components have been the driving force behind the increased index level. And although the for-sale component remains weaker, it is still double what it was just six quarters ago,” he said.
Analysts for Capital Economics, an international economic research consulting firm, predict multi-family housing starts will increase by as much as 50 percent in 2012.
The property/casualty industry has responded to conditions in the housing market with products focused on protecting home values, as well as other products centered on multi-family projects. Here are a few housing insurance products responding to recent trends.
Multi-family: In response to the growing number of multi-family tenant property owners and managers requiring tenants to purchase renters insurance, Marsh’s Real Estate Practice and Marsh’s U.S. Consumer division, created the Multi-Family Tenant Renters Insurance Program. This program provides property owners and managers with a way to offer guaranteed renters insurance coverage to their tenants. The coverage also protects property owners and managers against losses caused by tenants to their units or to surrounding units.
The program is underwritten by an “A” rated U.S. insurer. Policy administration and customer support services are provided by the insurer and Marsh U.S. Consumer. The program is currently available to property owners and managers in 30 U.S. states, with rollout to additional states planned for later in 2012.
The LeaseTerm Insurance Group is another company that recently introduced a multi-family policy. The product was designed to protect multi-family property owners and managers in reducing the risk of lease defaults and turnover expense.
LeaseTerm is teaming up with Great American Insurance Group to offer the product. The product can help with administration of security deposit, collections, eviction and recovery expenses.
Another new product for a niche within the multi-family real estate sector comes from Assurant Specialty Property and SureDeposit, which launched a risk management product for the multi-family housing industry.
Assurant purchased the Livingston, N.J.-based SureDeposit in June 2011. Now Assurant is integrating SureDeposit’s security-deposit alternative through surety bonds with its line of renters insurance.
The product will target multi-family housing managers and owners. The renters insurance protects property owners and managers from resident-caused damages. The surety bond covers companies against lost rent, damages and other lease violations.
Wells Fargo Insurance Services also caters to the broad multi-family housing market with its affordable housing product. It launched the Multi-family Affordable Housing Insurance Program in conjunction with the National Affordable Housing Management Association. It offers broad coverage and is available nationwide through approved sub-brokers.
Aon also expanded availability of its Aon Rent Protect, which reimburses landlords for lost income when tenants default on rent payments. The product was initially launched in 11 states and the District of Columbia, but will be available nationwide.
Rent default coverage has been sold overseas for years, but has not been available in the U.S. until recently, says Kevin Madden, managing director of the Real Estate practice at Aon Risk Solutions.
The product is backed by the QBE Insurance Group and was designed to address all sectors of the residential rental property market, including individual property owners and large property owners. The product will replace rental income for up to six months and offer assistance with legal expenses associated with evictions. Annual premiums start at $250 per rental unit.
Home Values: Protecting the value of a newly built home in today’s market conditions has been another area of opportunity for product innovation.
Home Value Insurance Co. re-entered the insurance market with a product that promises to protect homeowners from falling home values.
Home Value Insurance initially launched the product in 2009. The company has retooled it to make it an insurance coverage rather than just a “swap” or financial guarantee product.
The product works by covering a loss of owner-occupied primary residences if the homeowner sells for less than the home’s value when it was insured.
Homeowners who acquire a policy are locked in at the present home’s value for 10 years, ensuring that they are protected and compensated in case of a market decline of up to 25 percent. If home values appreciate during the policy term, insureds can cancel their current policy at no cost and purchase a new one.
Home Value Insurance Co. only covers homes valued at $500,000 or less, but homes valued over that can be submitted for approval. The policy applies to both existing and new homebuyers.
Insential Inc. also designed a program for owners of newly built homes and condos.
The program, called Home Value Plus+, will reimburse homeowners up to 20 percent of the diminished sales price of their home if it sells for a loss within three to eight years of buying the home. That number is subject to a 5 percent deductible.
The product is only available to home builders and developers to place on spec homes, new condos, and custom homes. It is administered exclusively through Insential to retail insurance agents and realtors in all states except New York.
Home Value Plus+ will also pay up to six mortgage payments for up to $1,500 each if a home buyer suffers involuntary unemployment.
This coverage is available in all states except New York, Oregon and Texas.
More Hot Markets for 2012