While Congress continues to examine increasing challenges within the property insurance marketplace, the National Association of Mutual Insurance Companies (NAMIC), has warned lawmakers to look beyond obvious weather events and focus on the root problems that are said to be driving insurance cost increases across certain areas.
“Insurance is a mechanism for spreading risk, and it is not insurance that’s changed. Instead, what we’re seeing is the risk and cost of what’s being insured going up dramatically. Between a changing climate, shifting population, reinsurance rate hikes, and historic inflation, we’re entering a new era of risk, and Congress shouldn’t ignore any of these variables,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC.
The NAMIC consists of more than 1,500 member companies, including seven of the top 10 P&C insurers in the US. The association supports local and regional mutual insurance companies on main streets across the country, as well as many of the country’s largest national insurers.
Ahead of a House Financial Services subcommittee hearing, Grande noted that more Americans have been moving into areas with high risk for hurricanes, wildfires, and other natural disasters in recent years. This factor, combined with the changing climate, has “dramatically increased” the risk in these areas.
In a testimony that has been submitted for the hearing, NAMIC highlighted how the US has experienced a record 24 confirmed weather/climate disaster events with losses exceeding $1 billion each as of October 10, according to the National Centers for Environmental Information.
At the same time, economic conditions, which includes supply chain issues, lingering high inflation, legal system abuse, and regulatory challenges have further aggravated the issue.
“People are moving en masse to riskier regions of the country, driving up the costs of those properties, as severe weather continues to wreak havoc,” Grande added.
“After major storms, we see higher costs for the materials needed to repair and rebuild those properties and the workers who rebuild them. When you add in an aggressive trial bar and elected officials who don’t want to approve rates reflecting increased risk, that’s how we end up with an affordability and availability problem.”
Moreover, a fraction are said to be seeking help from Congress in the form of a new federal program to solve this issue. This is being done either as a “backstop” to federally insure against extreme disasters, or a federally backed reinsurance mechanism.
However, Grande emphasized that such measures “mask the real problem” and are more likely to cause even more harm than good.
Grande said: “People are looking for an insurance solution to something that isn’t actually an insurance problem. Taxpayers across the country should not be on the hook for disaster claims for Americans living in high-risk areas. Worse yet, by using the federal government to suppress rates and disguise risk, it will make it easier for even more people to move into high-risk areas and add to the problem.”
As businesses renew policies annually, the costs of repairs and rebuilding materials and labor change far more swiftly, meaning the costs of a claim can be far higher than would have been expected when the policy was sold and price for coverage set.
As a result, Grande has urged lawmakers to focus on the economic challenges that created the affordability and availability problem.
“Insurers can’t fix high inflation and can’t stop abuses of our legal system. Congress needs to look past the surface issues of higher costs and focus on what’s driving those increases.”
Further, in its testimony, NAMIC has also outlined several factors leading to the increasing costliness of auto ownership and solutions that could be advanced on Capitol Hill, in addition to the association’s opposition to the Federal Insurance Office duplicating the work of functional state insurance regulators.
