The housing market's recovery will be slow, but rising confidence will spur demand for warranties
Los Angeles, CA (PRWEB) February 23, 2012
The Home Warranty Providers industry has declined during the past five years. Industry revenue is expected to fall at an annualized rate of 2.3% to $1.7 billion in the five years to 2012. The recession led to a sharp fall in existing home sales (many new home warranty contracts are sold during the purchase of a home) and homeownership rates, causing revenue declines. Consumer confidence also significantly dropped; as a result, consumers pulled back on items that were covered under their original home warranty plans, leading to lower warranty premiums. According to IBISWorld industry analyst Justin Molavi, “following the economic downturn, the stock market's value declined, limiting the growth of industry firms' investments and eating into profit margins.” However, there are some glimmers of hope amid a growing economy. In 2012, premiums are expected to increase, resulting in anticipated revenue growth of 4.6% from 2011 to 2012.
Amid declining revenue and premiums, many industry players merged or were acquired by their peers. As customer volume declined, industry players sought ways to increase their market share and gain new customers. Since many firms are local or regionally based, acquiring or merging with firms helped increase revenue while the economy was sluggish. Additionally, some players rebranded themselves to reach new customers. Molavi says, “while this strategy was not as effective as merging or acquiring a company with access to a wider customer base, these moves are expected to benefit the industry going forward.” American Home Shield, a division of ServiceMaster, is by far the industry's market leader. American Home Shield was the first company to begin offering home warranty policies to homeowners. The other largest companies in the industry are diversified insurance companies. Major industry players include First American Financial Corporation, Old Republic International Corporation and Cross Country Home Services. These firms have experienced growth during the past year.
Nevertheless, the next five years will not represent a complete rebound for the industry. Despite growth in existing home sales and homeownership rates, the housing market is not anticipated to completely recover over the next five years, limiting the industry's growth. However, as the US economy gains steam over the same period, consumer confidence will rise. In turn, consumers will demand that more of their appliances and home fixtures are covered by the industry's services, resulting in revenue growth. As a result of these trends, revenue is anticipated to grow in the five years to 2017.
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This industry underwrites (i.e. assuming the risk and assigning premiums) home warranty policies, which protect a homeowner against the cost of repair or replacement of any structural component or appliance of a home that is caused by normal wear and tear or a defect of a structural component or appliance.
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