Senate Banking Committee Holds Hearing on Challenges in the Property Insurance Market
On September 7, 2023, the Senate Banking, Housing, and Urban Development Committee held a hearing entitled “Perspectives on Challenges in the Property Insurance Market and the Impact on Consumers.” The hearing allowed Senators to discuss the challenges associated with extreme weather events and the impact of increasing insurance premium costs on consumers. Senators heard from three invited witnesses who commented on the challenges faced by consumer groups, affordable housing investors and residents, and the insurance industry in the rapidly changing landscape of property and casualty insurance. Several Senators asked the witnesses to detail the impact of the property insurance market on affordable housing owners and the residents they serve. Witnesses commented that the insurability of affordable housing is crucial to ensure that resources are available for property owners and their residents.
Opening Statements
Chairman Sherrod Brown (D-OH) began the hearing by describing the value of homeowners insurance for American families. He stated that, with the increasing frequency of natural disasters, homeowners face increased premium costs, limitations in coverage, and sometimes outright refusal of coverage. He discussed insurers of last resort, which are designed to fill gaps where the private insurance market will not provide coverage.
Ranking Member Tim Scott (R-SC) discussed that, in many cases, there are man-made disasters that will create devastating impacts on homes and communities. He discussed his experience in the insurance industry and detailed the calculation for probable maximum loss for an insurer. He commented that California's over-regulated insurance market makes competing difficult for companies. Florida needs tort reform because a large share of resources goes to attorney’s fees.
Witness Testimony
Douglas Heller, Consumer Federation of America, highlighted what consumers are dealing with in the insurance industry regarding costs and the process of filing claims. He stated that extreme weather events are a national problem, not just on the coasts. Heller noted that some insurers are walking away from long-served communities, and many consumers are forced into the state’s insurer of last resort. He commented that many prospective buyers cannot afford homes due to the inability to receive reasonable insurance rates. He closed by recommending that Congress consider a solution similar to the Terrorism Risk Insurance Act for property reinsurance.
Michelle Norris, National Church Residences, discussed how her organization provides affordable rental housing for 20,000 low-income senior citizens. She stated her concern about the trends in the insurance industry with increasing rates and reduced coverage. She commented that several housing trade organizations have created a task force to develop solutions to the challenge of insuring affordable housing developments. She stated that the insurance market significantly impacts the services provided to residents and the ability to construct affordable housing developments.
Jerry Theodorou, the R Street Institute, testified that the insurance industry is highly competitive in many states, and state residual insurance markets vary across many states. He stated that California is exposed to far more natural disasters than states such as Maine. He commented that California’s Proposition 103 has harmed the insurance industry and handicapped insurers. He commented that Florida’s excessive litigation has created affordability issues for insurers to remain in the market but noted that comprehensive tort reform was recently enacted in Florida.
Select Member Questions and Answers
Chairman Sherrod Brown (D-OH) discussed with Mr. Heller the impact of homeowners being priced out of the market due to climate change. Chairman Brown asked Ms. Norris to discuss how multifamily property coverage differs from individual homeowner insurance. She highlighted the impact of climate change on multifamily properties and stated that fewer insurers are offering multifamily coverage. Chairman Brown closed by asking how the U.S. can reduce risks, and Mr. Heller responded that building more resilient homes will help mitigate some of the risks of extreme weather events.
Senator Tim Scott (R-SC) suggested that the federal government is not the answer to what local communities need to do in deciding whether properties should be rebuilt in disaster-prone areas. Mr. Theodorou agreed, noting that the federal government does not have a good history of involvement in insurance. He pointed to the federal crop insurance program and the National Flood Insurance Program as examples. Senator Scott suggested that federal taxpayers should not subsidize state insurance challenges.
Senator Jack Reed (D-RI) asked about reauthorizing the National Flood Insurance Program (NFIP) and the consequences of letting the program expire after September 30, 2023. Mr. Heller noted that homeowners continue to face catastrophes and emphasized the need for flood insurance. He stated that the private market has not been there to provide insurance. Mr. Heller suggested a federal reinsurance program would be helpful to push flood insurance products back to the states and private markets but said until that happens, the NFIP is needed as a backstop. Senator Reed suggested that we need to do more preemptive work concerning resilience. With respect to concerns about insurance companies withdrawing from states, Senator Reed noted that Rhode Island requires insurance companies to notify the state before withdrawing, thus giving the state time to work with the companies to see if there are ways to keep them in the state. He asked if that is something that should be emulated elsewhere. Mr. Heller stated that Rhode Island’s approach makes sense.
Senator Mike Rounds (R-SD) noted that standard homeowners insurance does not cover damage caused by flooding, and Mr. Theodorou responded that flood damage coverage has been excluded for many decades. He commented that the NFIP has been the primary flood insurance provider but said the private market is growing. Senator Rounds said he believes it is important to renew the NFIP but noted that most homeowners do not purchase flood insurance because they do not think they need it.
Senator Bob Menendez (D-NJ) discussed the high premium costs for homeowners with Mr. Theodorou. Senator Menendez asked Ms. Norris to discuss historically challenged communities and what it would mean if the National Flood Insurance Program (NFIP) was not reauthorized. Ms. Norris answered that if affordable housing owners cannot be insured, it would have a devastating impact on the property and leave residents completely exposed to risk. She stated that without insurance, many affordable housing properties would be unable to rebuild in the case of a loss.
Senator Elizabeth Warren (D-MA) noted that the Federal Insurance Office (FIO) proposed to collect new data from insurers on the impact of climate change on private insurance. Senator Warren said state regulators and insurance companies are resisting, calling the collection unnecessary, ill-advised, and burdensome. She asked if the data would be helpful to understand and assess risk. Mr. Heller said it would be helpful, and Ms. Norris agreed.
Senator Catherine Cortez Masto (D-NV) commended the mitigation strategies that Nevada housing developers have implemented to prevent losses due to extreme weather events. She asked about why manufactured housing is subject to low-quality insurance and discussed with Mr. Heller the need to think about policy solutions for manufactured housing insurance. Senator Cortez Masto commented that the nation needs more affordable housing and said rising insurance costs have forced affordable housing owners out of the market. Ms. Norris noted that affordable housing communities run on two basic principles: 1) The people who move into the communities “are people who need to move into our communities – they can’t make too much money,” and 2) “We can’t charge them too much money to live there.” She stated that when catastrophic expense increases rise quickly, there is no way to adjust the rents. She stated that this leaves a situation where expenses crush operational margins or even the ability to meet costs, putting properties and residents at risk. She said that where rent can’t meet expenses, decisions such as cutting services or deferring expenses are made, and noted that eventually, owners might decide they cannot afford to stay in the market.
We want to highlight that this hearing followed numerous conversations we (HAG) have had with Chairman Brown and the majority staff of the Senate Banking Committee, in addition to several meetings with other Members of Congress and with the White House economic team. As Michelle Norris stated in her testimony, the affordable housing industry has formed a working group to gather data and develop potential solutions to present to Congress and the Administration. The Housing Advisory Group plays a vital role in this effort, and we appreciate the work many of our members are doing to assist in this endeavor. We also want to acknowledge the leadership of the National Multifamily Housing Council and the National Leased Housing Association.