New report offers ideas to expand insurance availability
Destruction from Hurricane Ian in Fort Myers Beach, Florida. Courtesy, Lee Co. Sheriff’s Office
The Congressional Budget Office (CBO) is out with its latest report, representing Congress’ ongoing effort to examine the property insurance market and determine if it has the juice to provide adequate, available, and affordable insurance following recent years of increased catastrophic losses. The report examines recent market changes, considers alternative insurance products, and identifies two scenarios where the federal government could play a much larger, multi-billion-dollar role.
The CBO’s report, Climate Change, Disaster Risk, and Homeowner’s Insurance has a big focus on climate change and its impact on property insurance, with much less discussion of mitigation and other loss control measures. Among the highlights:
- With increased uncertainty attributable to climate change, insurers may limit coverage for risks that are difficult to quantify or where regulators constrain their ability to set prices reflecting risk.
- Households may underinsure for natural disasters for a variety of reasons, including a lack of information about the risks and the extent of any post-disaster government assistance.
- Means-tested subsidies would make coverage more affordable for low- and moderate-income households while preserving incentives for other policyholders to mitigate losses, but controlling costs and implementing the program could be difficult.
The report also discusses approaches to expand insurance availability. “To increase the availability of disaster insurance, the federal government could expand its role in the disaster insurance market, under two possible approaches. Under the first, a risk-sharing approach, the government would act as a reinsurer for natural disaster losses. It would charge premiums to insurers and pay out claims when an insurer’s losses exceeded a specified amount. Under the second, the federal government would assume all the risk and sell insurance coverage directly to households for wildfires or other natural disasters, much in the way the NFIP (National Flood Insurance Program) does for flooding,” according to the report.
We at LMA find it curious that this CBO report would reference the NFIP, given all of its problems, including a current estimated $24 billion in debt (and tens of billions of dollars in forgiven debt from Congress over the past fifty years of the program), it certainly cannot be considered a successful program or a model for a much more expansive and expensive federal program. In fairness, Congress hasn’t helped the NFIP be successful.
The report was prepared at the request of the Ranking Member of the House Financial Services Committee, Rep. Maxine Waters (D-CA). The committee, along with U.S. Senate Budget Committee have been holding regular hearings debating the root cause of the property insurance crisis affecting homeowners nationwide and its broader impact on banks due to uninsured losses, as well as demanding the recent nationwide property insurance data call. Other recent congressional ideas on these topics include establishing a federal reinsurance fund for insurance companies. As with all its reports, the CBO notes its mandate is to provide objective, impartial analysis and that this report makes no recommendations.
LMA Newsletter of 9-16-24
