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The likelihood of the U.S. entering a recession this year has grown in recent weeks, as Donald Trump 's policies have thrown the stock markets into turmoil and sparked the threat of dangerous trade wars with some of the country's biggest trade partners.
Not even the property insurance sector, which is traditionally considered to be recession-proof, will be untouched by an economic downturn, experts warned, with homeowners facing the possibility of seeing premiums finally drop as competition grows or skyrocket should natural disasters strike. Why It Matters The U.S.
property insurance sector is facing an existential challenge posed by more frequent and more severe natural disasters linked to climate change. Confronted with higher catastrophe exposure and rising expenses, insurers have been dropping out of the country's most vulnerable areas and hiking premiums, pushing higher costs on policyholders. Between the Great Recession of 2008-2009 and the end of 2024, homeowners insurance premiums have increased by 74 percent while home prices rose by more than 40 percent, according to a recent study by the Joint Center for Housing Studies of Harvard University.
While regulators in states like Florida and California are working to stabilize their property insurance markets, a recession could once again throw them into disarray, with homeowners taking the brunt of potential disruptions. Can The Home Insurance Sector Remain Unscathed By A Recession? Betsy Stella, vice president of carrier management and operations at Insurify and an expert with over 20 years of insurance experience, told Newsweek that while the home insurance industry is typically subject to less disruption because of a recession than others, "no sector is completely recession-proof." The insurance sector is often referred to as recession-proof, "but that term places a lot of focus on the industry itself and less on the people working there," Bankrate insurance analyst Shannon Martin, told Newsweek .
"Job loss is common in a recession and, historically, carriers have tried to limit their profit loss through stricter underwriting guidelines and layoffs," she added. "Insurers have already leaned into replacing many service and claims roles with AI. A recession could lead to more layoffs within the industry.
" What Impact Would A Recession Have on Home Insurance Rates? During a recession, people have less disposable income at hand and they usually start spending less. "A recession can cause the prices of some goods to decrease, but also leads to job loss and lower wages," Martin explained. Some aspiring homebuyers may decide not to go through with their purchases and home loans can become more challenging to acquire, causing a slowdown in sales and a drop in demand for new homeowners' insurance policies.
"These changes directly impact home insurers' bottom line, limiting growth and cutting into profits," Martin explained. "Fewer home sales means fewer new policyholders." This could in turn lead insurers to take action.
While a recession by itself is not likely to affect premiums, "increased competition in the marketplace can lead to insurers repricing insurance rates in order to secure market share," Stella said. On the other hand, a recession could also lead insurers to increase premiums. "When homeowners can't afford to pay for damage to their home out-of-pocket, claim frequency increases," Martin said.
"If claims increase or the cost of building materials and labor rises, the cost of home insurance will likely follow." Experts have warned that some of Trump's policies, including tariffs on goods imported from Canada and Mexico and mass deportations of migrants, could exacerbate the U.S.
labor shortage in the construction sector and send the cost of homebuilding skyrocketing as crucial imported materials become more expensive. "Economic dislocation, especially a shift away from open trade, would have the most significant impact on underlying growth and replacement costs for personal auto insurance and homeowners insurance across the U.S.
," Mark Friedlander, director of corporate communications at the Insurance Information Institute (or Triple-I), told Newsweek . "Rising replacement costs may lead to higher auto and home insurance premiums for U.S.
consumers. It would also contribute to higher losses for commercial surety and specialty lines insurance, such as trade credit, business interruption, and political risk," he said. In the short-term, Friedlander said, the impact of trade wars involving the U.
S. could be a rise in the cost of covering homeowners' contents such as furniture and garments, and construction materials costing more and being "of lesser quality." An Unprecedented Scenario For The Sector The recession which followed the 2008 U.
S. subprime mortgage crisis and housing crash caused a flurry of regulatory efforts trying to reform the home insurance sector. This time, experts say, it may be different.
"If a recession were to occur, it may not look like the ones we have had in the past," Martin said. "Consumers and companies can be tempted to skirt the rules when money is tight, which is why regulatory measures increase during a recession. However, our country is currently experiencing a trend towards reduced regulation, and the insurance sector is no exception," she added.
In California, regulators have been recently blamed for artificially keeping premiums low and forbidding insurers from hiking premiums as much as they would have needed to remain profitable—a decision that critics say contributed to driving companies out of the state. Many homeowners who had their homes ravaged by the Los Angeles fires in January had recently been dropped by their insurer. "States like Florida and Louisiana have given carriers more control to increase carrier availability in the marketplace," Martin said.
"It is uncertain how these changes will affect homeowners during a recession.".
