APCIA, RAA Testify Before Senate Committee on Property Insurance Market

The American Property Casualty Insurance Association (APCIA) and the Reinsurance Association of American together presented testimony in Washington today on the state of of the property insurance market.

The presentation, “Perspectives on Challenges in the Property Insurance Market and the Impact on Consumers,” to the Senate Committee on Banking, Housing and Urban Affairs, outlined the U.S. property market’s financial condition and challenges.

“With natural disaster losses rising and millions of people increasingly at-risk, the cost of insurance is going up in many areas of the country and some insurers are having to rebalance their risk and reduce their exposure as a result of continuing natural disaster losses,” said Nat Wienecke, APCIA’s senior vice president of federal government relations, in a statement. “Reducing our risk must continue to be a shared priority among us all, and we must work together to adapt and increase our resilience in the face of climate-fueled disasters.”

The trade associations in their joint statement to the committee said the industry is “suffering deep and historic losses” not only due to more frequent natural catastrophe losses – including the impact of an increased volume of “secondary-peril” events – but also man-made factors such as demographic shifts, economic growth, inflation, legal system abuse, claims fraud, government interference, and regulatory constraints.

“Risk-based pricing helps society recognize and understand the true environmental costs, which in turn supports healthy insurance markets that are responsive to climate risks. In the U.S., regulations that restrict insurers’ ability to charge adequate rates or take other actions necessary to manage their overall exposure, particularly in high-risk markets, may lead to insufficient availability of insurance as insurers are forced to pursue other less volatile markets,” the groups said, acknowledging the steps some insurers have already taken to restrict coverage in certain states or regions.

Market disruptions can be alleviated by regulatory approval of adequate rates to address risks.

“Actuarially sound rates help with better recognition of climate-related impacts and increasing climate-risk exposures, encourage adoption of mitigation and resiliency strategies, and helps maintain insurance availability and private competitive markets,” they said while looking to the government-backed National Flood Insurance Program (NFIP) as proof. The program’s focus on affordability has resulted in a significant shortfall and has distorted the private market, encouraged development in high-risk areas, and discouraged risk mitigation.

Longer term, APCIA and RAA encourage the government’s cooperation in community resiliency, citing the Insurance Institute for Business & Home Safety’s research. Furthermore, the groups called for government-private partnerships that would accelerate the accuracy of catastrophe models.

The use of parametric insurance was also highlighted as a solution to the bridge some coverage gaps.

“Since the payment is based on a trigger being met rather than actual losses, insureds have an incentive to minimize their losses, reducing the insurance company’s exposure to moral hazard,” APCIA and RAA said. “Parametric contracts can also have broader benefits to society, such as a reduced chance of insurance fraud since the trigger is independently verified and the payment amount is fixed.

Topics Trends Property Market Politics