Finding a home in Rhode Island is difficult enough these days, but after prospective homebuyers pinpoint the rare house in their price range and successfully outbid others on their dream property, many are finding there’s another complication awaiting them: insurance.
Real estate agents and mortgage brokers say a growing number of buyers have been struggling to close their deals lately because insurance companies have either pulled back from offering homeowners policies in the area or they’ve raised rates drastically in recent years.
“There’s been a few more hiccups and hurdles in that process lately,” said Chris Whitten, owner and broker of Premeer Real Estate Inc. and president of the Rhode Island Association of Realtors.
Whitten says that what’s happening more frequently is that buyers are being denied insurance near the closing date, when lending documents are signed and the real estate officially changes hands.
“Now, they might have to shop around more for a quote,” he said. “When you’re trying to close a home, and a seller has already accepted your offer, you don’t have the time to do that.”
Those in the industry say insurance companies are reacting to the effects of climate change, which they say have increased the frequency and severity of storms, coupled with the increased costs to repair and replace damaged property.
Insurance companies have left other states such as Florida and California in large numbers, or reduced their exposure in those areas because of the risk of disasters such as hurricanes and wildfires.
In Rhode Island, the departure of insurance companies hasn’t been as drastic. But it still has been problematic.
In recent years, two insurance companies have stopped selling policies in Rhode Island, according to a Legislative Study Commission on Climate Change Impacts and Solutions. A third said it would no longer be renewing policies this year. And a fourth, which specialized in coastal properties, has canceled thousands of policies after going into receivership.
There are still 22 licensed insurers that are writing policies in Rhode Island, Elizabeth Kelleher Dwyer, the R.I. Department of Business Regulation director, said in a presentation to the study commission in February.
And for homeowners who can’t get coverage from traditional private insurers, there’s the Rhode Island Fair Access to Insurance Requirements Plan, or FAIR, the insurance of “last resort.”
Dwyer told the commission that Rhode Island is seeing an increase in expensive FAIR Plan policies, but they still remain less than 5% of the homeowners policies written in the state.
But even the traditional insurance market is getting very expensive, which in turn can make it more difficult for prospective homebuyers to qualify for financing.
Since the Great Recession began in late 2007, homeowners insurance prices have increased 74%, according to industry data. And Thomas Fleming, Rhode Island Mortgage Bankers Association vice president, says that higher premiums have in turn affected buyers’ debt-to-income ratio, which is used to qualify the buyer for mortgage financing.
Sixty-eight percent of lenders said homeowners insurance is causing debt-to-income problems in issuing mortgages to prospective buyers, a recent survey found.
“The property insurance market is the worst I’ve seen it in 45 years because of drastic premium increases during the last three years,” said Ernie Shaghalian Jr., an insurance agent at Butler & Messier Inc. in Pawtucket and chairman of the Government Affairs Committee of the Independent Insurance Agents of Rhode Island, acknowledging that “increased insurance premiums have added somewhat to the affordability issue for first-time homebuyers.”
That said, Shaghalian added that home prices, higher interest rate and mortgage amounts are much bigger challenges for prospective homebuyers.
Still, Whitten says, finding affordable insurance should not be the problem that it has become.
“This should be the easy part, the homeowners insurance should be a slam dunk when closing the home,” Whitten said. “[Problems] used to be few and far between years ago, but it’s happening much more frequently now.”
In some ways, it has altered the way real estate agents handle their clients.
Whitten says Realtors in Rhode Island have started helping buyers to secure a homeowners insurance policy right after an offer is accepted to head off last-minute snags. In some cases, insurance agents are brought in before the house hunting begins, Whitten says.
Mortgage loan officers are also being proactive with homeowners insurance providers, Fleming says, adding that the need for such collaboration is “a brand new layer for us.”
“We’re feeling the pain of the Rhode Island consumer and responding to it,” Fleming said. “When someone approaches our lender to buy a home, mortgage loan officers are now actually calling homeowners insurance agents just to make sure they have an up-to-date quote,” as rates continue to spike.
Officials say issues with home insurance can also be problematic for house sellers, hampering their ability to sell. Dwyer told the study commission that there have been cases in areas of Florida where difficulties in obtaining insurance have artificially held down home prices.
Whitten has heard that some sellers are raising questions. “ ‘Is my home insurable? Is this going to make it problematic to find a buyer for my home?’ ” he said. “A revolving door of buyers not making it to closing won’t boost their confidence.”
