Covered Insurance Solutions’ Ross Diedrich: The Evolving Landscape of Homeowners Insurance
Ross Diedrich is co-founder and CEO of Covered Insurance Solutions. He leads a team of experts developing insurance software that enables companies across the fintech, banking, real estate and mortgage industries to deliver integrated insurance experiences to customers.
Previously, Diedrich was the Vice President of Structured Products and CD Trading at Nathan Hale Capital, where he grew revenue 5.6x, achieved the highest ROE in the company and became the youngest partner of the firm.
In recent years, the homeowners insurance market has presented unprecedented challenges for both borrowers and mortgage servicers. As we navigate 2025, it’s crucial to understand these changes and explore innovative solutions to address the growing complexities in this vital sector.
The Current State of Homeowners Insurance
The homeowners insurance market is experiencing a period of unprecedented volatility. Average rates have surged by 33%, while non-renewal rates have skyrocketed by an alarming 500%. This dramatic shift has forced many homeowners into the surplus lines market, which saw a $3 billion increase in premiums. Payment percentages are at their highest in a decade, reflecting the financial strain on homeowners.
Adding to this complexity is the increasing regulatory intervention across states as policymakers grapple with balancing consumer protection and market stability. Simultaneously, insurers leverage advanced technologies like satellite imagery and AI to refine their risk assessment processes, often resulting in denied coverage for high-risk properties. All said, homeowners need to be more proactive and informed than ever before.
The Impact of Climate Change
One major factor driving these market shifts is the growing frequency and intensity of natural disasters caused by climate change. Insurers are re-evaluating their risk models, resulting in higher premiums and stricter underwriting criteria. This trend is particularly evident in coastal regions and areas susceptible to wildfires, where some insurers are pulling back coverage entirely.
Technological Advancements in Risk Assessment
The accelerated use of satellites and AI in risk assessment has revolutionized the insurance industry. While these technologies offer more accurate risk profiling, they have also led to increased coverage denials. Insurers can now identify potential risks with unprecedented precision, from roof conditions to vegetation proximity, often without physical inspections. While this data-driven approach is beneficial for insurers, it has left many homeowners struggling to secure adequate coverage.
Pain Points for Borrowers and Servicers
Borrower Challenges:
Affordability Shock: The sharp increase in premiums is placing substantial financial strain on homeowners. Many are experiencing yearly hikes that exceed wage growth, necessitating tough budgetary choices.
Confusion and Retention Risk: Frequent policy changes and non-renewals leave borrowers uncertain about their coverage. This instability can create gaps in coverage or insufficient protection.
Insufficient Coverage: Many homeowners find that they are underinsured, with average coverage gaps of 20%. This shortfall can be devastating in the event of a significant loss.
Force-Placed Insurance: This costly alternative often provides less comprehensive coverage at higher rates. Borrowers may find themselves trapped in these policies, unable to secure standard coverage.
Servicer Challenges:
Higher Default Rates: As insurance costs rise, more borrowers struggle to meet their mortgage obligations, increasing the risk of defaults and foreclosures.
Poor Customer Journey: The complexity of insurance issues adversely affects the overall customer experience. Servicers often find themselves caught in the middle, attempting to mediate between borrowers and insurers. Drastic changes in mortgage payments leave borrowers confused, resulting in an influx of calls into call centers asking why payments changed – sometimes, assuming the servicer made a mistake, leading to a poor customer experience.
Catastrophic Loss Risk: Insufficient coverage leaves servicers vulnerable to significant financial risks during disaster scenarios. In cases of widespread property damage, servicers may encounter substantial losses in their mortgage portfolios.
Increased Regulatory Exposure: Evolving regulations require ongoing vigilance and compliance efforts. Servicers must navigate a complicated web of state and federal regulations governing insurance and lending practices.
Increased Book Risk: The overall risk profile of mortgage portfolios is rising due to insurance-related issues. This heightened risk can influence servicers’ ability to sell or securitize loans.
The Need for a Unified Insurance Solution
The current ecosystem fails to deliver a cohesive insurance solution that addresses these multifaceted challenges. A fragmented approach leaves gaps in coverage, creates inefficiencies and ultimately leads to suboptimal outcomes for both borrowers and servicers.
Limitations of the Current System
The existing insurance model often operates in silos, with limited communication between insurers, lenders and servicers. This disconnected approach results in:
• Delayed identification of coverage issues
• Inefficient processes for policy renewals and updates
• Lack of real-time data sharing on property conditions and risk factors
• Inconsistent customer experiences across different touchpoints
Envisioning a Unified Customer Experience
To address these challenges, the industry must pivot towards a next-generation, unified insurance solution. Here’s what this could look like:
Step 1: Access – Embedded and Integrated
The future of homeowners insurance lies in seamless integration with mortgage processes. By embedding insurance options directly into the mortgage journey, we can simplify the process for borrowers and ensure comprehensive coverage from the outset.
Step 2: Awareness – Insights-Driven Campaigns
Insurers and servicers can leverage data analytics to create targeted awareness campaigns. These would educate borrowers about their insurance needs and options, reducing confusion and improving decision-making.
Step 3: Consideration – Comprehensive Context
Give borrowers a holistic view of coverage options, premiums, and persistent context. This approach ensures that homeowners understand the full scope of their insurance needs and can make informed choices.
Step 4: Purchase – Streamlined Digital Binding
Implement a low friction switch/save digital binding process. This streamlined approach reduces friction in the purchasing process.
The Path Forward
As we navigate the complexities of the evolving homeowner’s insurance landscape, a unified, technology-driven approach is vital. We can build a more resilient, efficient, and customer-focused insurance ecosystem by leveraging data analytics and seamless integration. Mortgage servicers and insurers must work together to create these next-generation solutions. This collaboration will tackle current challenges and position the industry to adapt to future changes more effectively.
The benefits of this unified approach are manifold:
• Improved affordability and coverage for borrowers
• Reduced default risks for servicers
• Enhanced regulatory compliance
• Streamlined operations and reduced costs
• Better customer experiences and satisfaction
As leaders in the mortgage and insurance industries, we are responsible for driving this transformation. By embracing innovation and prioritizing customer needs, we can turn current challenges into opportunities for growth and improvement.
The road ahead may be complex, but with a unified vision and collaborative effort, we can build a more stable, efficient, and customer-friendly homeowners insurance market for 2025 and beyond. This evolution will require significant investment in technology, changes in regulatory frameworks, and a shift in industry mindset towards more collaborative and customer-centric models. However, the potential benefits – from reduced risk and improved customer satisfaction to more stable housing markets – make this transformation desirable and essential for the long-term health of the mortgage and insurance industries.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
