What agents need to know as the insurance markets harden, PIA has tools to offer guidance

January 10, 2023

Hard market refers to a high demand for insurance and a decreased desire to insure. A soft market marks the opposite, when the demand for insurance coverage and competition in the market is minimal. The COVID-19 pandemic caused global economic hardship. The U.S. is still trying to recover from this and has been pushed fully into an inflated economic environment.

How we got here

In the first months of the pandemic, many people lost their jobs. Initially, employment managed to rebound a bit, however as of December 2022, the U.S. unemployment rate is 3.5%, indicating that 5.2 million people are still not working.[1]

Currently, one of the biggest concerns for the American economy is the housing market. Over the course of 2022, home prices were run up to exorbitant figures. Coincidentally, the COVID-19 pandemic saw more single-person households moving into apartments. This unexpected increase absorbed the individuals who would normally be part of the home-buying demand. By the second half of 2022, demands to the rental market had been exhausted. This resulted in fewer lease signings, rising vacancies, and the falling of rents.

Eventually, the national apartment vacancy number rose to 5.9%, marking the highest level since April 2021. Unfortunately, this number continues to rise 0.2%.[2] Ironically, there are more apartment units under construction in the U.S. than there have been in 50 years. This only means that more supply will be discarded into the market.

During the catastrophic housing market crash of 2008, homeowners that lost their homes needed to live somewhere, and so they began renting apartments instead. This demographic of renters greatly supported the rental market. Fast forward to the 2023 post-pandemic U.S. marketplace and rents have fallen nationally every month, on an average of 0.9%.[3] By contrast, a healthy marketplace would typically see annual rental growth of 3%. According to Apartment List, this suggests that rents have actually fallen by 3% in three months. The hollowing effect of new lease demands resulted in an offset not seen since 2009. Home builders were more prudent in the 2010s. Development and building was focused primarily on apartments for Generation Y.

The hope is that rent demands mellow out, investors accept their losses, and the marketplace sees some rebalancing. However, the risks are that capital will dry up, multifamily developers will go bankrupt, and new construction nosedives. These possible risks could lead to years of minimal building.

Protections for clients

Helpful protective measures that investors and landlords can take during this time is making sure to invest in landlord insurance, also known as rental property insurance. Landlord insurance covers liability, hazard, and loss of income. Another valuable insurance policy worth investing in is tenant rent default insurance. This policy is referred to as rent guarantee insurance. Landlords should invest in this to protect against tenancy defaulting on rental payments. It can help prevent any interruptions to a landlord’s income, by reimbursing in the event of non-payment.

Protections for agents

As the market hardens, insurance agents have difficulty finding the insurance they need to protect their agencies. However, now is not the time to go unprotected—especially with your agency’s E&O liability insurance.

As the market trends continue to affect your clients’ premiums, they are affecting your commissions. When you receive notices from your carriers that they are decreasing commissions, your first question may be: “Can they legally do this?” The first step you should take is to check your agency agreement. PIA members can read: Hard markets and commission cuts: What can producers do?

[1] U.S. Bureau of Labor Statistics, 2022 (bit.ly/3IAEdvG)

[2] Apartment List National Report, 2023 (bit.ly/3XaHiXG)

[3] Axios, 2022 (bit.ly/3Qttd5t)

Shirley Albright, CPIA, CISR
PIA Northeast | + posts

Shirley Albright, CPIA, CISR, joined PIA in 1983 and has worked in many facets of the association over the years. In 1995, she was an integral part of establishing the Industry Resource Center to include the development of the software system to record and track all incoming and outgoing inquiries. She quickly moved from industry resource representative to assistant director and eventually to her current position as director. Currently, Shirley oversees the daily operations of the Industry Resource Center to include the triage of thousands of incoming member inquiries. Her other accomplishments include obtaining her New York state property/casualty broker’s license, CPIA and CISR designations.

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