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US Senate searches for fix to homeowners insurance woes

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US Senate searches for fix to homeowners insurance woes

During a June 5 meeting of the Senate Budget Committee, senators and witnesses brainstormed potential solutions to fix the exasperating issues with affordability and availability of homeowners insurance.

Clouded in part by differing arguments over the true impact of climate change on the insurance market, it was at times difficult to assess the goals of the hearing, which was titled "Riskier Business: How Climate is Already Challenging Insurance Markets."

Witnesses at the hearing offered several solutions that they felt may help lessen the severity of the insurance issues, including suggestions to focus on mitigation before disaster strikes and to introduce reforms such as updating building codes.

Issues around affordability and availability of property and casualty insurance have been increasingly catching the attention of Congress, especially as insurers have been significantly scaling back or exiting business in certain geographies.

Potential solutions

During the hearing, several witnesses encouraged senators to focus on certain things that they felt would drastically abate the chaos in the property and casualty market.

Speaking before senators, Oklahoma Insurance Commissioner Glen Mulready said encouraging a "business-friendly environment is one of the best things to do.

Mulready said one insurance company has exited business in his home state and some other states as well. However, he pointed out that there are still 100 insurers operating in the homeowners market in Oklahoma.

Mulready also stressed the importance of mitigation, citing a Federal Emergency Management Agency survey that shows mitigation from natural catastrophes saves $6 on average for every $1 spent on federal mitigation grants.

"Insurance isn't a partisan issue," Mulready said. "Mitigation and resilience is not a partisan issue."

Regarding the impact of climate change, Sen. Mitt Romney (R-Utah) said it would be hard to tackle climate change and fix the insurance market since the issue is impacted by actions across the world.

"The idea that we're going to fix climate and solve the insurance problem is pie in the sky," Romney said. "That's a global issue, not an American issue."

Romney instead suggested focusing on battling inflation and said no subsidies should be provided for building in high-risk areas.

Calls for more data

Several participants in the hearing also advocated for the advancement that the Federal Insurance Office (FIO) proposed in response to an executive order issued by President Joe Biden in 2021 to have the agency examine the impact of climate change on insurance in the US. The proposal to collect data from insurers previously garnered opposition from the insurance industry.

Ishita Sen, assistant professor of Finance at Harvard Business School, said one of the most important things that can be done is to collect data to figure out exactly how exposed insurers are.

"We don't even know the basic facts about this problem at a granular enough level," Sen said. "The risks here are local and so we need to know what's going on ZIP code by ZIP code."

Mulready noted that the National Association of Insurance Commissioners is in the middle of a data collection for at least 80% of the US homeowners market and is working with FIO on its request for data.

When asked if any states objected to sharing data, Mulready said he did not know of any objections from specific states.

The June 5 hearing was not the first attempt that senators recently made to address issues with insurance when it comes to catastrophic events.

Earlier this year, the Senate Committee on Banking, Housing and Urban Affairs held a hearing to discuss solutions to fix the nation's flood insurance problem. During that hearing, senators from both sides of the aisle criticized various aspects of the current flood insurance system and called for reform.

Chairman Sheldon Whitehouse (D-RI) adjourned the hearing by issuing a statement that all members could agree with: "It is a hell of a tough time to be a consumer."