The cost to insure a home has seen a significant increase in many states across the U.S. in recent years, drawing the attention of lawmakers in Washington.
A Bipartisan Debate
During a Senate Banking Committee hearing held on Thursday, Democrats and Republicans engaged in a heated debate surrounding the factors contributing to the rising rates and deductibles for home insurance. They also discussed the trend of insurance companies pulling out of markets in states like California and Florida, citing a lack of profitability.
Climate Change and Natural Disasters
Senator Sherrod Brown, chair of the committee and a Democrat from Ohio, primarily attributed these increasing costs to climate change and the escalating number of natural disasters. He pointed out that the U.S. has already witnessed 15 weather disasters causing damages exceeding $1 billion in 2023. This stands in stark contrast to the 40-year average of 7.9 such disasters per year.
The Call for Action
Senate Democrats, including Elizabeth Warren of Massachusetts and Sheldon Whitehouse of Vermont, are urging the Biden administration to leverage existing regulatory powers in order to address the climate crisis and safeguard consumers from climate-related risks. In a letter to Treasury Secretary Janet Yellen, they emphasize the need for the Federal Insurance Office within the Treasury Department to collect and publish comprehensive data on the impact of climate change on the insurance industry. This data would enable a better understanding of why the average cost of home insurance has risen by 21% since 2015.
The rising cost of home insurance warrants immediate attention, as both homeowners and lawmakers recognize the urgent need for action to mitigate the impact of climate change on insurance premiums.
Federal Government and Resilient Infrastructure
During a recent hearing, Douglas Heller, the director of insurance at the Consumer Federation of America, highlighted the need for the federal government to go beyond data collection and take decisive action to address the problem at hand. Heller proposed that Congress pass legislation to provide funding for more resilient infrastructure and offer incentives to homeowners to make improvements that mitigate the risks associated with national disasters.
Public Reinsurance Facility
Heller also suggested the establishment of a public reinsurance facility that insurers can access as a safety net in the event of “mega-catastrophes.” The concern over such catastrophic events has prompted some insurers to withdraw coverage from areas prone to natural disasters. To encourage insurers to participate in this facility, Heller argued that they should be required to offer continuous and meaningful property insurance in exchange for subsidized reinsurance.
State-Level Laws and Regulations
Senate Republicans, on the other hand, prioritized examining the role played by state-level laws and regulations in driving up costs and limiting competition. Senator Tim Scott of South Carolina, the ranking Republican on the committee, emphasized that manmade disasters in certain states had jeopardized insurance availability.
Scott specifically mentioned California’s “overregulated market” as a reason that insurers have chosen to stop offering policies in the state. He also blamed tort law in Florida, where an overwhelming majority of homeowners-insurance lawsuits are filed despite the state having a small proportion of policies.
Reforming State Laws
To address these concerns, Florida Governor Ron DeSantis signed legislation earlier this year aimed at reforming the state’s tort law. This reform is expected to reduce costs for insurers by limiting the amount they are liable for in damages and legal fees during litigation.
Similarly, leaders in California are reportedly considering legislation to make it easier for insurers to increase premiums. The hope is that this will encourage more companies to remain in the state and continue providing coverage.