Flood risk is not only one of the most destructive perils facing property owners; it is among the most complicated forms of coverage for property/casualty insurers to underwrite. For decades, the private market wouldn’t cover flood risk, which is why the National Flood Insurance Program had to be established.
But improved data collection and the availability of practically unlimited computing power have changed the equation for insurers, according to Anil Vasagiri, senior vice president for property solutions at Swiss Re. In a recent Executive Exchange with Triple-I CEO Sean Kevelighan, Vasagiri discussed the developments that have helped turn flood from a nearly untouchable peril to a burgeoning area of opportunity for insurers.
Over 90 percent of natural catastrophes involve flood in some way or another. Vasagiri said the ability to use multiple data sources in understanding flood conditions of specific properties helps insurers more accurately underwrite flood and help policyholders proactively address their own exposure to the peril.
“Increased information leads to increased capacity,” Vasagiri said – a fact that bodes well for improving insurance availability and affordability and evidenced by the increased number of private insurers writing flood coverage since 2016.
The timing of the private market’s increasing appetite for flood risk is fortuitous, as it coincides with Risk Rating 2.0, NFIP’s new pricing methodology that aims to make the government agency’s flood insurance premium rates more actuarially sound and equitable by better aligning them with individual properties’ flood risk. As NFIP rates become more aligned with principles of risk-based pricing, some policyholders’ prices are expected to fall, while many are going to rise.
In the Executive Exchange, Vasagiri discussed the Swiss Re’s acquisition of Fathom – a U.K.-based company specializing in water-related risks – as part of the company’s ongoing commitment to helping close the flood protection gap.
Legislative reforms put in place in 2022 and early 2023 to address legal system abuse and assignment-of-benefits claim fraud in Florida are beginning to help the state’s property/casualty insurance market recover from its crisis of recent years, according to a new Triple-I Issues Brief.
Claims-related litigation is down, the “depopulation” of the state’s insurer of last resort continues apace, and underwriting profitability – while still in negative territory – has improved significantly. Insurers also benefited from a relatively mild 2023 Atlantic hurricane season and a meaningful increase in investment income, posting a net profit for the first time in seven years.
But it’s important to remember that the crisis wasn’t created overnight and that it will take time for the reforms and other developments to be reflected in policyholder premiums. Homeowners should not expect their rates to decline in 2024, despite the improved industry performance, although some regional insurers have filed for small decreases.
“Rates may moderate some compared to prior years,” said Mark Friedlander, Triple-I director of corporate communications, “but rising replacement costs – combined with expected higher reinsurance costs for the June 1 renewals – are going to continue to drive average premiums upward in 2024.”
One factor keeping upward pressure on rates is fraud and legal system abuse. With only 15 percent of U.S. homeowners insurance claims, the state accounts for nearly 71 percent of the nation’s homeowners claim-related litigation, according to Florida’s Office of Insurance Regulation.
There are early signs that recent legislative reforms are beginning to bear fruit. In 2023, Florida’s defense and cost-containment expense (DCCE) ratio – a key measure of the impact of litigation – fell to 3.1, from 8.4 in 2022, according to S&P Global.
But the catastrophe-prone state faces a number of natural challenges, from a projected “extremely active” 2024 hurricane season to wildfires, flooding, and severe convective storms.
“Hurricanes get the most media attention,” Friedlander said, “but severe convective storms inflict comparable losses. And it only takes one bad hurricane season to wipe out the benefits of one or more mild years.”
The 2024 U.S. wildfire season is expected to be more damaging than 2023 but below the historical average in terms of the number of fires and acres burned, according to AccuWeather.
AccuWeather’s wildfire team predicts fires across the country will burn between 4 and 6 million acres of land in 2024, below the historical average of around 7 million acres. Last year, U.S. wildfires in the United States burned 2,693,910 acres – the fewest acres burned since 1998, when around 1.3 million acres were scorched, according to the National Interagency Fire Center.
“Stormy weather lingering over the Northwest into the latter part of spring will put a lid on both wildfires and the measures humans take to suppress the fire danger,” AccuWeather reported. “Prescribed burns may be put on hold in the Northwest during May and early June due to above-average precipitation.”
California has been home to some of the worst fires in the United States over the past decade, but – thanks to a wet and stormy winter – AccuWeather says wildfires will likely be limited until later in the summer.
At the same time, AccuWeather meteorologists said the Texas Panhandle and other nearby areas of the southern Plains face a high to extreme risk of significant fires in 2024.
The annual monsoon is a key factor affecting wildfires across the southwestern United States.
“Monsoon-induced thunderstorms can be a double-edged sword,” AccuWeather says. “Downpours and an uptick in humidity can help crews battle and contain wildfires, while lightning strikes can trigger new infernos.”
AccuWeather says the start of the monsoon season in 2024 is likely to be slow at first before picking up in July and August.
Residents and police gather outside of homes in Newark, N.J., that were damaged by a 4.8 magnitude earthquake on April 5. (Photo by Spencer Platt/Getty Images)
Last week’s earthquake in Lebanon, N.J. – the strongest to hit the state in more than 200 years and which halted activity in New York-area airports and was felt from Washington, D.C., to Maine – highlighted the importance of earthquake preparedness, mitigation, and insurance in areas traditionally not associated with damaging seismic activity.
Earthquake insurance is not covered under a standard homeowners policy. According to A.M. Best, $250 million in direct premiums written for earthquake coverage was in force in Connecticut, New Jersey, and New York in 2023, accounting for less than 5 percent of U.S. earthquake coverage premiums.
Claims from last week’s event are not expected to be excessive.
“Insurers may be anticipating small claims from owners of businesses,” said Janet Ruiz, Triple-I director of strategic communication. “For example, grocery stores, where glass bottles may have fallen from shelves. But the insurance impact is likely to be limited.”
The most significant impact occurred in Newark, N.J., where three multifamily row homes were declared uninhabitable because of potential structural damage, displacing dozens of residents. However, on Saturday morning, the properties were declared structurally safe and residents were allowed to return.
Earthquakes large enough to be felt by a lot of people are relatively uncommon on the East Coast. Since 1950 there have been about 20 quakes with a magnitude above 4.5, according to the United States Geological Survey. That’s compared with over 1,000 on the West Coast.
In 2011, a 5.8 magnitude quake near Mineral, Va., shook East Coast residents over a wide swath from Georgia to Maine and even southeastern Canada. The USGS called it one of the most widely felt quakes in North American history. The quake cost $200 to $300 million in property damages, including to the Washington Monument in D.C., much of it uninsured.
Just as floods can inflict damage in areas not designated by FEMA as “flood zones,” any property where a quake can happen can undergo significant damage. Unlike in earthquake-prone states like California, however, structures typically are not designed or built with seismic events in mind. Homeowners would be well advised to discuss with their insurance professionals whether earthquake coverage is right for them.
Last week’s temblor also should drive awareness of the need for Congress to reauthorize the National Earthquake Hazards Reduction Program (NEHRP) – a federal program that helps mitigate earthquake damage to buildings and communities. The NEHRP expired in September 2023. Bipartisan legislation to reauthorize the program was introduced in January 2024.
“I’ve seen what happens when communities aren’t prepared and haven’t mitigated,” said Dr. Lucy Arendt, a professor with St. Norbert College and Chair of the NEHRP Advisory Committee on Earthquake Hazards Reduction, in a March 7 congressional briefing hosted by the National Institute of Building Sciences (NIBS). “People are displaced from their homes. Schools are closed. Businesses shutter. There’s a lot of trauma.”
Arendt said investment in knowledge, time, and money prior to a severe disaster is significantly less than the cost to help communities recover from a major threat.
“There is a resilience gap between where we are today and where we should be as a resilient nation,” said Daniel Kaniewski, a former FEMA deputy administrator and member of the NIBS Multi-Hazard Mitigation Council. “I saw firsthand the collapse of infrastructure. These are things you might not see because it’s buried underground. But without water and power, that community cannot recover. Lifeline infrastructure needs to be restored quickly and efficiently.”
Most of the built environment is not designed to withstand earthquakes. Communities with weak building codes, older housing stock, unreinforced masonry buildings, and unmitigated hazards will fare worse than others, Kaniewski said.
“This, combined with the potential severe human toll, means that any U.S. earthquake could have catastrophic consequences that would reverberate well beyond the impact zone,” he added. “Damage to manufacturing facilities, transportation nodes, and communications networks and disrupted supply chains would be among the long list of cascading failures. Massive government spending would be necessary” to repair in the aftermath of such an event.
Colorado State University hurricane researchers predict an “extremely active” Atlantic hurricane season in their initial 2024 forecast. The team cites record-warm tropical and eastern subtropical Atlantic sea surface temperatures as a primary factor for their prediction of 11 hurricanes this year.
Led by senior research scientist and Triple-I non-resident scholar Phil Klotzbach, Ph.D, the CSU Tropical Meteorology Project forecasts 23 named storms, 11 hurricanes, and five major hurricanes during the 2024 season, which starts on June 1 and continues through Nov. 30. A typical Atlantic season has 14 named storms, seven hurricanes, and three major hurricanes.
The 2023 season produced 20 named storms and seven hurricanes. Three reached “major hurricane” intensity. Major hurricanes are defined as those with wind speeds reaching Category 3, 4 or 5 on the Saffir-Simpson Hurricane Wind Scale.
“We anticipate a well above-average probability for major hurricanes making landfall along the continental United States coastline and in the Caribbean this season,” Klotzbach said. “Current El Niño conditions are likely to transition to La Niña conditions this summer/fall, leading to hurricane-favorable wind-shear conditions. Sea surface temperatures in the eastern and central Atlantic are currently at record-warm levels and are anticipated to remain well above average for the upcoming hurricane season. A warmer-than-normal tropical Atlantic provides a more conducive dynamic and thermodynamic environment for hurricane formation and intensification.”
One hurricane and two tropical storms made continental U.S. landfalls last year. Category 3 Hurricane Idalia struck Florida’s Big Bend region near Keaton Beach on Aug. 30 with wind speeds of 115 mph. It was the third hurricane, and second major hurricane, to make a Florida landfall over the past two seasons. Idalia caused storm surge inundation of 7 to 12 feet and widespread flooding in Florida and throughout the Southeast.
“The widespread damage incurred from Idalia last year highlighted the importance of being financially protected from catastrophic losses – and that includes having adequate levels of property insurance and flood coverage,” said Triple-I CEO Sean Kevelighan. “Beyond Florida, we saw significant impacts from Idalia in southern Georgia and the Carolinas. All it takes is one storm to make it an active season for you and your family, so it is time to prepare as the 2024 Atlantic hurricane season’s start nears.”
With this forecast in mind, now is ideal time for homeowners and business owners to review their policies with an insurance professional to ensure they have the right amount and types of coverage. That includes exploring whether they need flood coverage, which is not part of a standard homeowners, condo, renters or business insurance policy.
Homeowners also can make their residences more resilient to windstorms and torrential rain by installing roof tie-downs and a good drainage system. Installation of a wind-rated garage door and storm shutters also boost a home’s resilience to a hurricane’s damaging winds and may generate savings on a homeowner’s insurance premium.
Private-passenger vehicles damaged or destroyed by either wind or flooding are covered under the optional comprehensive portion of an auto insurance policy.
Property owners in Lee County, Fla., could lose their flood insurance premium discounts under the National Flood Insurance Program (NFIP) Community Rating System (CRS), according to a recent announcement by FEMA.
CRS is a voluntary program that recognizes and encourages community floodplain management practices that exceed NFIP minimum requirements. Over 1,500 communities participate nationwide.
FEMA informed leaders in the affected communities – which include Cape Coral, Bonita Springs, Estero, Fort Myers Beach, and unincorporated Lee County – that they would begin losing their discounts starting October 1. Under CRS, these communities currently receive discounts of up to 25 percent. Unincorporated Lee County and the City of Cape Coral get the biggest benefit due to their Class 5 ratings. Rates will increase by approximately $300 annually for the 115,000 homeowners impacted by FEMA’s decision.
“This retrograde is due to the large amount of unpermitted work, lack of documentation, and failure to properly monitor activity in special flood hazard areas, including substantial damage compliance,” FEMA said in a statement.
FEMA officials told the Miami Herald that the problems began shortly after Hurricane Ian in 2022, when federal teams visited the communities hit the hardest and looked at the properties they thought were most likely to be substantially damaged, including older homes built in flood zones, some with previous flood damage.
“What the team found, unfortunately, is there was a lot of unpermitted work, lack of documentation,” said Robert Samaan, the regional administrator for FEMA’s Region 4, including Florida. “It was just a failure to properly monitor the activity in the special flood hazard area.”
FEMA shared with the Herald three letters it sent Lee County in 2023 — one in February, one in June and one in December — asking for information on the number of damaged homes and warning that not providing the information could result in the county losing its flood insurance discounts.
In recent months, a number of Florida communities, including Miami-Dade County, have benefited from lower flood insurance premiums as a result of improved CRS scores that reflect resilience-related investment. CRS has become particularly beneficial as NFIP pricing reforms – known as Risk Rating 2.0 –that more closely align premium rates with property-specific risks – have contributed to rising premiums for some property owners. Before these reforms, it was not uncommon for lower-risk owners to be subsidizing higher-risk ones through their premium rates.
Rising NFIP rates have been accompanied by another trend: increased involvement by private insurers in the flood insurance market.
“Florida has the most robust private flood insurance market in the United States, which provides consumers with numerous options for coverage,” said Mark Friedlander, director of corporate communications for Triple-I. “Nearly a third of Florida flood policies are written by private carriers, and many private flood insurers offer better pricing and more robust policies than NFIP. It’s worth taking the time to shop for coverage and obtain multiple quotes.”
As recently as 2018, private insurers provided only 3 percent of flood coverage in Florida.
This growth mirrors a national trend. Between 2016 and 2022 the total flood market grew 24 percent – from $3.29 billion in direct premiums written to $4.09 billion – with 77 private companies writing 32.1 percent of the business, up from 18 companies writing 12.5 percent. Private insurers are accounting for a bigger piece of a growing pie.
Florida’s Office of Insurance Regulation has heavily promoted the availability of private flood insurance in the state over the past several years, and many private flood insurers are domiciled in the state, Friedlander said.
“We are committed to helping these communities take appropriate remediation actions to participate in the Community Rating System again and work towards future policy discounts,” FEMA said in its statement.
Earlier this year, Sea Isle City, N.J., had its Class 3 rating restored after a brief demotion in 2023. Sea Isle City and Avalon are the only towns in the state to have Class 3 ratings.
Sea Isle City, N.J., has regained its Class 3 rating under FEMA’s National Flood Insurance Program (NFIP) Community Rating System (CRS) after a brief demotion last year. Being rated Class 3 enables the coastal town’s property owners to receive a 35 percent discount on their federal flood insurance.
CRS is a voluntary incentive-based program designed to encourage strong floodplain management. Class 1 is the highest rating, enabling residents to obtain a 45 percent reduction in their premiums. Class 10 indicates that a community doesn’t participate in CRS. To date, only two of the 1,500 participating communities nationwide have achieved the highest rating: Tulsa, Okla., and Roseville, Calif.
High ratings are not easy to obtain or maintain. Sea Isle City first reached Class 3 in 2018, and the rating was briefly lowered to Class 4 last year after points awarded to communities after Superstorm Sandy expired. The city quickly regained Class 3 status through additional flood-management activities.
In the mid-1990s, conditions were so bad for Sea Isle City that it was nearly ejected from the NFIP. If this had happened, property owners wouldn’t have had access to federal flood insurance. Neil Byrne, the city’s floodplain manager, construction official, building sub-code official, and zoning officer, attributes the improvement to strengthened zoning ordinances that require structures to be elevated higher than FEMA recommends, as well as investment in berms and bulkheads.
“The history of Sea Isle City going from facing expulsion from the NFIP to now leading the charge in the CRS in New Jersey is truly inspirational,” said Thomas Song, FEMA resiliency specialist. “What does not get enough attention is that success in the CRS program has to start with a strong understanding of the day-to-day compliance with NFIP requirements. It is extremely difficult to advance in CRS status without a strong foundation in floodplain-management practices.”
Achieving higher CRS rankings has become something of a friendly competition among coastal New Jersey towns, and only one other New Jersey community – Avalon – has a Class 3.
“Both Sea Isle City and Avalon have demonstrated their commitment in planning for future flooding, implementing higher building standards, and engaging in extensive public outreach,” Song said. “These efforts create an environment geared towards reducing flood damage and enhancing the safety and well-being of residents.”
As NFIP – through its Risk Rating 2.0 reforms – attempts to better align premium rates with risk, CRS discounts become even more significant to owners in flood-prone communities.
Last year, 17 Florida jurisdictions achieved Class 3 ratings. In Cutler Bay – a town on Miami’s southern flank with about 45,000 residents – the average premium dropped by $338. Citywide, that represented a savings of $2.3 million. In January 2024, Miami-Dade County became the latest municipality in the flood- and hurricane-prone state to achieve Class 3, leapfrogging from Class 5 due to the county’s flood-mitigation investments.
Meanwhile, back in New Jersey, Byrne says Sea Isle City hopes to become the state’s first Class 2 community.
“It’s very hard to get to the next level,” he said, but adds that flood pumps could help the city over the hump.
“Ninety-nine percent of our flooding is tidal flooding,” Byrne said, referring to inundation that happens during high tide events. “A lot of it goes away on its own, but we have little areas that need help getting the water out.”
About 90 percent of all U.S. natural disasters involve flooding. For decades, NFIP was practically the only available option for homeowners to obtain flood coverage. Before Risk Rating 2.0, however, coverage for higher-risk properties was often unfairly subsidized by lower-risk property owners.
In recent years, improved data, analysis, and modeling have helped drive increased private-sector interest in flood risk. This, combined with the NFIP reforms, should foster a more competitive flood insurance market in which coverage is both more available and more fairly priced.
“Collective responsibility and multi-disciplinary collaboration are necessary to build resilience around climate-related perils like flood,” said Triple-I CEO Sean Kevelighan. “FEMA’s CRS program is just one example of how communities can make themselves safer and save money through targeted investments that reduce the likelihood and size of catastrophic losses.”
Auto premiums continue to increase as rising labor and material prices, alongside natural disasters, are forcing insurers to contend with significant losses.
As Triple-I previously found in its January report, Insurance Economics and Underwriting Projections: A Forward View, “commercial auto underwriting losses continue, with a projected 2023 net combined ratio of 110.2, the highest since 2017,” according to Jason B. Kurtz, FCAS, MAAA, a Principal and Consulting Actuary at Milliman. Combined ratio is a standard measure of underwriting profitability, in which a result below 100 represents a profit and one above 100 represents a loss.
Insurers are now having to increase rates in response to losses that are expected to keep rising.
“Nobody wants to have that higher-price bill,” said Sean Kevelighan, Triple-I’s CEO. However, he added companies “need to price insurance according to the risk level that’s out there.”
While inflation is partially to blame for these increases, natural disasters are also contributing to rising costs—and not only in traditionally disaster-prone areas like Florida and California.
As the overall P&C industry has struggled with severe convective storms, hurricanes, and other natural disasters, these losses have also been felt in commercial auto. In fact, 2023 witnessed around two dozen U.S. storms, each with losses of around a billion dollars or more. This included major lightning, hail, and damaging winds around many areas of the of the U.S.
“While a lot of these storms don’t make national headlines, they do tend to be very costly at the local level,” says Tim Zawacki, principal research analyst for insurance at S&P Global Market Intelligence. “And the breadth of where these storms are occurring is something that I think the industry is quite concerned about.”
While disasters and economic inflation continue to roil commercial auto, so too does social inflation. As the Triple-I previously reported, “social inflation,” which is the presence of inflation in excess of economic inflation, has also significantly contributed to increases in commercial auto premiums.
Triple-I found that “from 2013 to 2022, increasing inflation drove losses up by between $35 billion and $44 billion, or between 19 percent and 24 percent. The pandemic brought significant change to commercial auto liability, decreasing claim frequency while increasing claim severity more dramatically.”
This increased claim severity is at least partially due to changing driving patterns since the pandemic, including distracted driving, which involves behaviors like cellphone use while behind the wheel. A Triple-I Issues Brief, Distracted Driving: State of the Risk, enumerated these concerns, which have undoubtedly played a role in rising commercial auto premiums.
Indeed, a confluence of issues are playing into rising auto premiums. While natural disasters are out of the control of insurance providers and their policyholders, other factors must be addressed to steady the cost of this line of insurance. This includes telematics and usage-based insurance, which has gained more acceptance since the pandemic.
Still, it is incumbent on insurers, policyholders, and policymakers to create a more sustainable market for auto insurance, working together to tackle the challenges of both climate risk and dangerous driving behavior.
Even as the Smokehouse Creek Fire – the largest wildfire ever to burn across Texas – was declared “nearly contained” this week, the Texas A&M Service warned that conditions are such that the remaining blazes could spread and even more might break out.
“Today, the fire environment will support the potential for multiple, high impact, large wildfires that are highly resistant to control” in the Texas Panhandle, the service said.
This year’s historic Texas fires – like the state’s 2021 anomalous winter storms, California’s recent flooding after years of drought, and a surge in insured losses due to severe convective storms across the United States – underscore the variability of climate-related perils and the need for insurers to be able to adapt their underwriting and pricing to reflect this dynamic environment. It also highlights the importance of using advanced data capabilities to help risk managers better understand the sources and behaviors of these events in order to predict and prevent losses.
For example, Whisker Labs – a company whose advanced sensor network helps monitor home fire perils, as well as tracking faults in the U.S. power grid – recorded about 50 such faults in Texas ahead of the Smokehouse Creek fires.
Bob Marshall, Whisker Labs founder and chief executive, told the Wall Street Journal that evidence suggests Xcel Energy’s equipment was not durable enough to withstand the kind of extreme weather the nation and world increasingly face. Xcel – a major utility with operations in Texas and other states — has acknowledged that its power lines and equipment “appear to have been involved in an ignition of the Smokehouse Creek fire.”
“We know from many recent wildfires that the consequences of poor grid resilience can be catastrophic,” said Marshall, noting that his company’s sensor network recorded similar malfunctions in Maui before last year’s deadly blaze that ripped across the town of Lahaina.
Role of government
Government has a critical role to play in addressing the risk crisis. Modernizing building and land-use codes; revising statutes that facilitate fraud and legal system abuse that drive up claim costs; investing in infrastructure to reduce costly damage related to storms – these and other avenues exist for state and federal government to aid disaster mitigation and resilience.
Too often, however, the public discussion frames the current situation as an “insurance crisis” – confusing cause with effect. Legislators, spurred by calls from their constituents for lower premiums, often propose measures that would tend to worsen the problem because they fail to reflect the importance of accurately valuing risk when pricing coverage.
The federal “reinsurance” proposal put forth in January by U.S. Rep. Adam Schiff of California is a case in point. If enacted, it would dismantle the National Flood Insurance Program (NFIP) and create a “catastrophic property loss reinsurance program” that, among other things, would set coverage thresholds and dictate rating factors based on input from a board in which the insurance industry is only nominally represented.
U.S. Rep. Maxine Waters (also of California) has proposed a Wildfire Insurance Coverage Study Act to research issues around insurance availability and affordability in wildfire-prone communities. During House Financial Services Committee deliberations, Waters compared current challenges in these communities to conditions related to flood risk that led to the establishment of NFIP in 1968. She said there is a precedent for the federal government to step in when there is a “private market failure.”
However, flood risk in 1968 and wildfire risk in 2024 could not be more different. Before FEMA established the NFIP, private insurers were generally unwilling to underwrite flood risk because the peril was considered too unpredictable. The rise of sophisticated computer modeling has since given private insurers much greater confidence covering flood (see chart).
In California, some insurers have begun rethinking their appetite for writing homeowners insurance – not because wildfire losses make properties in the state uninsurable but because policy and regulatory decisions made over 30 years ago have made it hard to write the coverage profitably. Specifically, Proposition 103 and its regulatory implementation have blocked the use of modeling to inform underwriting and pricing and restricted insurers’ ability to incorporate reinsurance costs into their premium pricing.
California’s Insurance Commissioner Ricardo Lara last year announced a Sustainable Insurance Strategy for the state that includes allowing insurers to use forward-looking risk models that prioritize wildfire safety and mitigation and include reinsurance costs into their pricing. It is reasonable to expect that Lara’s modernization plan will lead to insurers increasing their business in the state.
It’s understandable that California legislators are eager to act on climate risk, given their long history with drought, fire, landslides and more recent experience with flooding due to “atmospheric rivers.” But it’s important that any such measures be well thought out and not exacerbate existing problems.
Partners in resilience
Insurers have been addressing climate-related risks for decades, using advanced data and analytical tools to inform underwriting and pricing to ensure sufficient funds exist to pay claims. They also have a natural stake in predicting and preventing losses, rather than just continuing to assess and pay for mounting claims.
As such, they are ideal partners for businesses, communities, governments, and nonprofits – anyone with a stake in climate risk and resilience. Triple-I is engaged in numerous projects aimed at uniting diverse parties in this effort. If you represent an organization that is working to address the risk crisis and your efforts would benefit from involvement with the insurance industry, we’d love to hear from you. Please contact us with a brief description of your work and how the insurance industry might help.
When the U.S. Treasury Department’s Federal Insurance Office (FIO) announced in December 2022 that it was considering a new data-reporting mandate for certain property/casualty insurers, it raised red flags for insurers and policyholders.
In response to a request for comments on the proposed data call, Triple-I told FIO the requested data would be duplicative, could lead to misleading conclusions, and – by increasing insurers’ operational costs – would ultimately lead to higher premium rates for policyholders.
“Fulfilling this new mandate would require insurers to pull existing staff from the work they already are doing or hire staff to do the new work, increasing their operational costs,” Triple-I wrote. “As FIO well knows, state-by-state regulation prevents insurers from ‘tweaking’ their cash flows in response to change the way more lightly regulated industries can. Higher costs inevitably drive increases in policyholder premium rates.”
“While we recognize the Treasury’s desire to better understand the impact of climate risk and weather-related exposures on the availability and affordability of the homeowners’ insurance market,” NAIC wrote, “we are disappointed and concerned that Treasury chose not to engage insurance regulators in a credible exercise to identify data elements gathered by either the industry or the regulatory community.”
FIO has listened and responded appropriately. The agency has abandoned its plan to gather data on home insurance rates and availability in high-risk states. Instead, NAIC announced that it has implemented a nationwide Property & Casualty Market Intelligence Data Call (PCMI) in collaboration with FIO.
“The PCMI data call represents the collaborative, nonpartisan work that state insurance regulators have undertaken through the NAIC to address the critical challenge of the affordability and availability of homeowners’ insurance and the financial health of insurance companies,” said NAIC president Andrew Mais, who also serves as Connecticut’s insurance commissioner.
The change in approach is important both on its own merits – in ensuring that FIO obtains the information it needs without excessively and unnecessarily burdening the insurance industry – and in the recognition it reflects that federal actions affecting the insurance industry should involve the industry. For example, legislation proposed by U.S. Rep. Adam Schiff earlier this year to create a federal “catastrophe reinsurance program” raises several concerns that warrant scrutiny and discussion – not the least of which is that it would set coverage thresholds and dictate rating factors based on input from a board in which the insurance industry is only nominally represented.
“Triple-I commends the decision by FIO and NAIC to collaborate on a joint comprehensive property/casualty insurance data call to gather insights into the dramatic changes we’re seeing in the insurance marketplace,” said Triple-I CEO Sean Kevelighan. “Insurance companies are committed to finding solutions for how we can predict and prevent property damage from natural disasters, as well as keeping costs of coverage at competitive levels. Data calls are time-consuming and expensive. A unified collection of data will help make this a more efficient process.”
