This article was produced with Risksmith Residential Solutions.
The US homebuilder market is on track for continued growth in 2025. However, the pace of construction and the target buyers are shifting.
Instead of sprawling, high-end custom builds, the next wave is being driven by smaller, affordable homes designed for first-time buyers. This has shifted not just how builders operate, but how insurers assess, price, and model construction risks.
“It’s the new generation of homeowners that’s going to drive sales into the future, and they want something affordable, available, and move-in ready,” said Chadd Folkes (pictured), CEO of Risksmith Residential Solutions, a managing general underwriter (MGU).
Folkes explained that this trend is a relatively recent development.
“Over the last 15-20 years, homebuilders leaned heavily into ‘build-to-order.’ They’d clear land, then ask buyers which model they wanted, how they wanted to customize it, and deliver a semi-custom experience,” he said. “That worked well because buyers felt they had input without the cost of a true custom build.”
However, high interest rates, persistent affordability concerns, and demographic trends are now pushing builders toward entry-level price points.
“We’re seeing a move back toward something closer to the old tract builder model, meaning four distinct home designs, repeated across a development,” Folkes said.
Smaller, lower-cost homes are within reach of more buyers and can be built faster. At the same time, they often mean reduced replacement values, less fire exposure, and faster build times.
Faster project cycles also translate to quicker turnover of capital and fewer carrying costs for unsold inventory. These factors are a boon in a market where supply chain constraints and labor shortages continue to hamstring project timelines.
From an insurance standpoint, these factors lower potential loss severity and shorten the period that builders’ risk policies remain in force.
Insurers are recalibrating their approach to match this new landscape. Pre-fabricated construction, now more common in affordable builds, reduces variability in materials and makes replacement easier. Standardized designs allow for more predictable loss modelling, while shorter construction windows reduce exposure to severe weather events.
However, pre-fab builds introduce their own risks. “One challenge is material buildup,” Folkes said. “If you’re pre-ordering in bulk, you need secure off-site storage. That creates new exposures: where are materials stored, how are they protected, who’s responsible?”
Then there’s transportation. Moving large volumes of materials or prefab components means exposure during transit, which means builders must evaluate storage facilities and logistics partners carefully.
And amid high demand, there’s a temptation to speed up builds. But Folkes cautioned builders against cutting corners.
“Before 2010, the leading cause of builder losses was temporary heaters. Contractors would use them to dry walls quickly, but sometimes they caused fires,” said Folkes. “That’s why it’s important to remember past mistakes. Going too fast can create risks you don’t anticipate until it’s too late.”
Finally, market conditions also play a role in a builder’s exposure. In a softer economy, inventory can linger longer than planned. Builders’ risk coverage typically extends until sale, but often no more than six months, and many insurers prefer to see no more than a quarter of a builder’s portfolio sitting unsold.
“Vacant homes invite squatters, vandalism, and theft. In catastrophe-prone areas like Florida, that risk multiplies,” Folkes pointed out.
Rising homeowners insurance costs in high catastrophe-risk states like California and Florida are pushing buyers – and builders – into small- to mid-market states with more affordable coverage options. Midwestern states, parts of the South, and the interior West are benefiting from this trend, with insurers more willing to price competitively given the reduced catastrophe exposure.
Smaller, standardized builds in lower-risk geographies create a sweet spot for pricing because of lower severity potential on total losses, shorter build times, and less chance of major weather events impacting builds.
For retail brokers, working with the wholesalers who bring expertise and guidance makes a marked difference, not just for coverage, but for helping insureds run their businesses more effectively. Risksmith Residential Solutions partners with top-in-class capacity providers to build solutions for complex residential challenges.
“This isn’t a cookie-cutter line of business,” said Folkes. “Builder’s risk coverage is complex, and there’s an art to underwriting it properly.”
Learn more about Risksmith Residential Solutions here.
