Consumer advocates argued Thursday before a Senate committee examining the impact of climate change on property insurance premiums that better state regulation and more federal involvement are necessary to halt the surprising increase in the cost of homeowners’ insurance.
No, countered supporters of the insurers, the objective should be to scale back unnecessary regulation and make it more difficult for dissatisfied householders to sue companies over claims handling.
Jerry Theodorou, who has spent the past 15 years as an analyst in the property and casualty insurance industry and is now the policy director for insurance at the R Street Institute, added that the public needs to be educated on how insurance operates.
“Yes, they understand how it works. “It’s called write a check and then you have to sell blood plasma to go to the grocery store,” said U.S. Senator John N. Kennedy, who questioned the experts about what Congress should do about the escalating cost of homeowner’s insurance. The Republican senator from Madisonville serves on the Senate Committee on Banking, Housing, and Urban Affairs.
Over the past few months, experts who testified before the committee stated that home insurance premiums have increased by an average of 26.4% nationwide and by as much as 120% in some markets.
Only households in Florida, who pay an average of $4,200, have higher premiums than those in Louisiana, who pay an average of $2,038. According to the R Street Institute, a political think organization that describes itself as center-right, the national average is $1,331.
At least five large U.S. property insurers have ceased accepting new clients, citing extreme weather patterns as the cause. In some regions, insurance providers are selling more expensive policies with less coverage and higher deductibles.
The Ohio Democrat who heads the committee, U.S. Senator Sherrod Brown, said the situation is rapidly escalating into a crisis, causing homeowners to spend money they cannot afford, pay higher mortgages to cover insurance required by their lenders, or abandon homeownership.
“Homeowners are increasingly confronted with an unpleasant surprise,” said Brown. “When it is time to renew their policies they are hit with higher costs or no coverage as insurers are leaving markets altogether,” adding that storms are stronger and more frequent than they have been.
This year, the National Oceanic and Atmospheric Administration recorded 15 meteorological disasters with costs exceeding $1 billion each. And it’s no longer just hurricanes with high intensity. Brown stated that disasters have cost $34 billion in the first six months of 2023, ranging from wildfires in Hawaii to flooding in Vermont.
Douglas Heller, director of insurance at the Washington, D.C.-based Consumer Federation of America, testified that communities in the Midwest that are experiencing an increase in tornadoes, heavy rainfall, and hailstorms are now paying some of the highest insurance premiums.
In addition to an increase in natural disasters, insurance companies must pay approximately 50% more for reinsurance, the policies they purchase to mitigate their own losses during a disaster. The market is unregulated, according to Heller. In most states, including Louisiana, insurers are authorized to pass along to consumers the increased costs of reinsurance.
Michelle Norris, executive vice president of National Church Residences, a national group based in Columbus, Ohio that provides income-restricted and senior living apartments, believes the federal government should begin selling reinsurance to help stabilize prices.
Norris and Heller argued that the government should spend more to help homeowners make their homes more resilient, thereby reducing the number of damages that insurers must cover.
Republican U.S. senator from North Carolina, Thom Tillis, opined that the crisis was best handled by state regulators. Tillis stated, “There is a way to fix this problem, but I do not believe there is a federal government solution.”
The R Street Institute’s Theodorou concurred with Tillis.
The reinsurance market and the primary insurance industry are not on their knees, contrary to conventional belief, he stated. “It’s not collapsing.”
Senator Elizabeth Warren (D-Massachusetts) stated, however, that senators have no way of knowing the status of the insurance industry because insurers and state regulators have refused to provide information requested by Vice President Joe Biden regarding the impact of climate change on the industry.
“Insurance companies and state regulators oppose this. “They argue that the collection of this information is unnecessary, ill-advised, and burdensome,” Warren stated.
“It’s one of the reasons why the market crisis we’re discussing feels so sudden,” said Heller, “because we haven’t been collecting the data that would have allowed us to prepare.”