Rental Boom Sends Many Consumers Shopping for New Insurers

As many Americans swap homeownership for renting, they're also ditching their longtime insurance companies. That’s the latest trendline from consumer analytics firm J.D. Power's newly released 2021 U.S. Home Insurance Study, which measures customer retention in homeowners and renters insurance lines this year.

Renting Is on the Upswing, Particularly Among Boomers

The fading consumer loyalty to insurers, the J.D. Power study suggests, could be particularly acute among the growing numbers of baby boomer adults, who are increasingly choosing renting over homeownership as they approach retirement.

A recent housing market analysis by the Joint Center for Housing Studies of Harvard University, for example, found that about two-thirds of all U.S. rental housing growth between 2004 and 2019 was driven by adults age 55 and older—and that group now accounts for 30% of all renter households.

What's more, 84% of renters now believe that renting is more affordable than owning, according to a survey by Freddie Mac. That percentage represents an all-time high for the survey, which has tracked renter and owner perspectives since 2015. 

Boomer renters stood out in the Freddie Mac survey, with 87% saying that renting is more affordable than owning. In addition, boomer renters are more satisfied (50%) with their rental experience as compared with other generations (older Millennials 39%, Gen X 35%, younger Millennials 33%). And growing numbers of boomers (currently 27%) say they will never move from their rental situation.

How Loyalty Differs Among Generations

Only about half (52%) of baby boomers and pre-boomers, as identified by J.D. Power (born before 1946), who move from homeowners to renters insurance policies stay loyal to the same insurer, the study found.

"The generational shift from home ownership to renting represents a significant customer retention risk unless insurers figure out a better way to maintain customer loyalty throughout this critical life phase," says Robert M. Lajdziak, J.D. Power's senior consultant of insurance intelligence. "So far, most insurers are missing that mark."

The report called out the boomer population because it had the largest share that made this transition. But J.D. Power data suggest that insurers are struggling to keep other transitioning age groups as customers, as well. The percentage of homeowner-turned-renter policyholders who keep their insurer falls to 44% among Gen X insureds and 36% among insureds in Gens Y and Z. By comparison, the annual retention rate for all homeowners insurance customers is 91.7%, Lajdziak notes.

"There is a huge opportunity out there for insurers that get the life-stage transition formula right," he says, "but the scale of this generational movement will likely drive a great deal of switching activity in the future."

What Impacts Loyalty and Retention?

Along with housing preferences, affordability, and generational trends, there are other factors at play, according to the U.S.-related findings of a recent global insurance consumer survey by Deloitte.

One reason for high retention rates in the homeowners insurance sector, for instance, might be that 56% of U.S. consumers bundle their auto and home coverages, far higher than in any other country Deloitte surveyed except Canada. That makes it more likely for customers to stick with their carrier—and harder for insurers to compete for just one of the paired policies at renewal time.

Another issue behind the retention numbers is the fact that more homeowners than renters either have, or are required by their lenders to have, insurance coverage. The 2020 Triple-I Consumer Poll from the Insurance Information Institute found that 88% of homeowners had homeowners insurance coverage compared to the 57% of renters who carried renters insurance.

Service Now Tops Price for Importance

This year’s J.D. Power study also probed retention and overall customer satisfaction with homeowners and renters insurance by focusing on five factors: interaction, policy offerings, price, billing process and policy information, and claims. Based on responses from 11,828 homeowners and renters, the study's additional findings show:

• Three insurers stand out in the retention race. Compared with the industry average, USAA, State Farm, and Amica Mutual have especially high rates of retention when their homeowners insurance customers change to renters insurance, Lajdziak says.
• Service, not price, is now the key driver to stay or go. Among renters who stay with their previous homeowners insurance brand, the most common reasons are good service, brand reputation, bundled products, and convenience. Price is fifth on the list. (In last year’s J.D. Power U.S. Home Insurance Study, 52% of renters insurance customers said price was the main reason they chose a carrier.)

Which Home and Renters Insurance Companies Rank Highest?

In the homeowners insurance category, Amica Mutual ranked highest for overall satisfaction in the J.D. Power study, with a score of 854 (on a 1,000-point scale). Automobile Club of Southern California (840) came in second, while Erie Insurance (835) and State Farm (835) tied for third. Fourth on the list is Automobile Club Group (AAA) with a score of 834, and rounding out the top five is American Family (831). USAA, which is not ranked because it doesn't sell to the general public, scored 882.

In the renters insurance segment, Lemonade retained its leader spot from last year, ranking highest with an overall satisfaction score of 870. State Farm (866) came in second and American Family (838) was in third place. Nationwide (834) took the fourth spot and Allstate (833) came in fifth. Here, USAA's score reached 893.