Manufactured homes: Building opportunities

Agents can benefit by acquiring expertise in this niche

By Dave Willis

For years—decades even—the manufactured housing industry was rather robust. However, over the past several years, the business has experienced a significant drop-off. "Shipments of homes from manufacturers to dealers peaked in the late 1990s, at more than 300,000 units a year," explains Sally Kressin, assistant vice president, residential property products for American Modern Insurance Group in Cincinnati.

Over the last three years, however, shipments have been steadily declining. "In 2008, just fewer than 90,000 units shipped, and in 2010, it was just over 50,000 units," adds Kressin, whose firm insures owner-occupied manufactured homes, as well as seasonal, tenant and vacant manufactured homes—regardless of the units' value or age.

Mike Cok, vice president, specialty property products for Foremost Insurance Co., does not expect things to turn around anytime soon. "It's going to be some time before we see a return to historic new shipment levels," he explains, partly because of challenges associated with implementation of HUD codes. The U.S. Department of Housing and Urban Development maintains a national preemptive code for manufactured homes that addresses standards for everything from design and construction, transportability and energy efficiency to internal workings, such as heating, plumbing, air conditioning, thermal and electrical systems.

"Another issue is the absence of stable, national lending," adds Cok, whose firm has insured manufactured and mobile homes for 60 years and operates in every state except Hawaii. Kressin sees this, too. "The credit crisis has made financing difficult to get for homebuyers," she adds, "and also for dealers, to maintain lot inventory."

The lending crunch has changed the landscape of the park business. "With fewer shipments of new homes, manufactured park owners are not just renting lots as they always have, but they are filling the empty lots with used homes for rent," Kressin explains.

The manufactured home market still consists primarily of owner-occupied units, Cok says. And, despite a decline in new-home shipments, existing inventory remains high, which means opportunities exist for agents and brokers interested in the business.

Insuring manufactured homes

The property insurance market for manufactured homes, in part, tracks the broader residential insurance arena. "The personal lines property insurance industry is clearly going through a significant hardening," Cok notes. "Manufactured homes are no different. I believe the industry will be seeing rates increase and underwriting tighten."

Weather patterns affect manufactured homes—which some folks call "wind magnets"—as much or more than other types of structures. "Thunderstorms, tornadoes and the continued concern of hurricanes are causing carriers to reevaluate how much capital they want to designate to the homeowners segment in general," Cok adds. "I think that's preventing some carriers from considering this as a growth opportunity."

Kressin echoes the sentiment. "As the stock of manufactured homes ages, they are more susceptible to loss by wind, hail and interior water damage," she explains.  This causes property loss costs for insurers to rise, especially in light of increased storm activity over the past several years.

"As loss costs rise, it's not unreasonable to expect tightened underwriting, rising prices and decreased coverage, through higher deductibles and more exclusions or both," Kressin adds. "We've seen some competitors leave the market and expect others to follow.  Standard companies have decreased their appetite for manufactured homes considerably.  If they are taking manufactured homes at all, they only want the very new ones."

The casualty side is a bit different. "It's a much more competitive landscape," Cok notes. "Consumers have more choices." It's hard to miss the ads designed to turn buyers' focus to price and to bundling a variety of insurance coverages with one provider.

"That's an issue we always deal with, particularly in the personal lines space," he adds. "But while price is an important consideration, there is so much more that goes into it—financial stability, claims service when the time comes, proper coverages and, of course, having a good consultant, which the independent agent is."

Building a presence

Opportunities exist for independent agents and brokers to do well in this market. "Even though the growth is slow, the 2009 census estimates this market at just over 10 million units," says Kressin. And the approach to serving the market mirrors what retail agents and brokers do every day.

"Agents need to make sure they are assessing the needs of the customer and providing them with the proper coverage," she adds. "Insurance to value is, perhaps, the most important aspect of working with clients in this market. As manufactured homes depreciate with age, it is important to know whether the customer would want to replace the home with a brand new model similar to existing one, or if they intend to replace it with a similar model of a similar model year."

If true replacement cost is desired, the cost of insurance will be much higher, Kressin notes, because of the difference between replacement cost and market value. "While this is true in standard homeowners insurance, it is more pronounced with manufactured homes, because of the depreciation rate," she explains.

Insuring contents properly can also be an issue. "Because of lower home values, the standard 50% of the home value for contents coverage may not be enough," Kressin adds. "Another aspect to getting the proper coverage is understanding to what extent these homes may have been modified. Modifications can be difficult to value, and it is important to understand whether or not the policy includes attachments in the dwelling value or they are insured separately under Coverage B."  Common modifications include additions, decks, porches, carports and awnings.

Cok also encourages agents and brokers to understand coverage issues and product differences. "We focus on coverages that matter and offer a range of price-points so agents can respond to different situations," he explains. His and other firms offer products that range from what he calls "coverage laden" to those that are more "streamlined."

Much depends on what the insured values, and this can be driven, in large part, by how the agent or broker educates the buyer. "It can be complex for agents to stay on top of, but there are certainly a range of tools and options they can use to compete effectively," Cok adds.

Working in the manufactured home segment can provide new growth opportunities. "I've seen a lot of agents find success and grow a really nice presence, because of their willingness to focus in this," Cok explains. "Remember, many of these buyers gather in communities. That's the nature of the market. If an agent or broker can deliver value to one customer, it's easy to ask for a referral to neighbors and others in the community."

Account rounding represents another growth opportunity. "If you serve a customer well on their manufactured home coverage, there's probably an auto or two to cover, as well," he adds. "A lot of agents focus on the home as an entry point, and then expand from there."

Despite broad market challenges, Cok is optimistic about the opportunities. "While manufacturers have been suffering through relatively low shipments, we feel very good about the business long-term. We're excited about the future."

Adds Kressin, "Manufactured housing represents an important part of the residential market. It's a segment where agents and brokers can do well as they develop expertise and then share their knowledge with prospects and clients."