CD294: Homeowners Insurance

CD294: Homeowners Insurance

Jun 27, 2024

Every American who has a mortgage is required by their bank to have homeowners insurance, but getting it and keeping it is becoming a challenge. In this episode, hear the highlights of a Senate hearing examining the problems in the homeowners insurance market and why they might lead to much bigger problems next time disaster strikes.

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Background Sources

Effects of Climate on Insurance

“As Insurers Around the U.S. Bleed Cash From Climate Shocks, Homeowners Lose.” Christopher Flavelle and Mira Rojanasakul. May 13, 2024. The New York Times.

“Van Hollen, Warren, Whitehouse Urge Treasury to Protect Consumers Against Insurance-Related Climate Risks.” Chris Van Hollen et al. September 7, 2023. Chris Van Hollen, U.S. Senator for Maryland.

“Climate Change and U.S. Property Insurance: A Stormy Mix.” Alice C. Hill. August 17, 2023. Council on Foreign Relations.

“Facts + Statistics: Homeowners and renters insurance.” Insurance Information Institute.

“Climate change and P&C insurance: The threat and opportunity.” Antonio Grimaldi et al. November 19, 2020. McKinsey & Company.


“Chuck Grassley: Top Industries 1989 – 2024.” OpenSecrets.

“Ron Johnson: Top Industries 2009 – 2024.” OpenSecrets.

“Oil & Gas Recipients.” OpenSecrets.

Heritage Foundation

“Heritage Foundation.” SourceWatch.


“Harvard Study Again Stirs the Pot on Demotech Ratings of Florida Carriers.” William Rabb. April 15, 2024. Insurance Journal.

“When Insurers Exit: Climate Losses, Fragile Insurers, and Mortgage Markets.” Parinitha Sastry et al. December 2023.

Fannie Mae

“Fannie Mae: Loans, Rules, and Programs.” Adam Hayes. May 17, 2023. Investopedia.


“National Hurricane Center Tropical Cyclone Report: Hurricane Otis” [EP182023] National Oceanic and Atmospheric Administration.

“National Hurricane Center Tropical Cyclone Report: Hurricane Michael” [AL142018] National Oceanic and Atmospheric Administration.

Audio Sources

Riskier Business: How Climate is Already Challenging Insurance Markets

Senate Committee on the Budget
June 5, 2024


  • Glen Mulready, Insurance Commissioner, State of Oklahoma
  • Rade Musulin, Principal, Finity Consulting
  • Dr. Ishita Sen, Assistant Professor of Finance, Harvard Business School
  • Deborah Wood, Florida Resident
  • Dr. EJ Antoni, Research Fellow, Heritage Foundation’s Grover Hermann Center for the Federal Budget


23:05 Sen. Sheldon Whitehouse (D-RI): In 2022 and 2023, more than a dozen insurance companies left the Florida residential market, including national insurers like Farmers. Residents fled to Citizens Property Insurance, the state backed insurer of last resort, which ballooned from a 4% market share in 2019 to as much as 17% last year. If it has to pay out claims that exceed its reserves, citizens can levy a surcharge on Florida insurance policy holders across the state. Good luck with that. Particularly if the surcharge grows to hundreds or even thousands of dollars to depopulate its books. Citizens has let private insurers cherry pick out its least risk policies. Those private insurers may have problems of their own, as we will hear today.

25:10 Sen. Sheldon Whitehouse (D-RI): The federal budget takes a hit because these insurers and their policies are accepted by Freddie Mac and Fannie Mae, who either own or guarantee a large part of our $12 trillion mortgage market. This all sounds eerily reminiscent of the run-up to the mortgage meltdown of 2008, including a role of potentially captive or not fully responsible rating agencies.

25:45 Sen. Sheldon Whitehouse (D-RI): Florida is far from alone. A New York Times investigation found that the insurance industry lost money on homeowners coverage in 18 states last year, and the states may surprise you. The list includes Illinois, Michigan, Utah, Washington, and Iowa. Insurers in Iowa lost money each of the last four years. This is a signal that hurricanes and earthquakes, once the most prevalent perils, are being rivaled by hail, windstorms, and wildfires.

28:00 Sen. Sheldon Whitehouse (D-RI): This isn’t all that complicated. Climate risk makes things uninsurable. No insurance makes things unmortgageable. No mortgages crashes the property markets. Crashed property markets trash the economy. It all begins with climate risk, and a major party pretending that climate risk isn’t real imperils our federal budget and millions of Americans all across the country.

33:45 Sen. Chuck Grassley (R-IA): Insurance premiums are far too high across the board and may increase after the recent storms, including those very storms in my state of Iowa. Climate change isn’t the primary driver of insurance rate hikes and collapse of the insurance industry isn’t imminent. Although I’ll have to say, Iowa had six property and casualty companies pull out of insuring Iowans. Climate change doesn’t explain why auto insurance premiums in 2024 have increased by a whopping 20% year over year. It also doesn’t account for the consistent failure of liberal cities to fight crime, which has raised insurance risk and even caused insurers to deny coverage. Expensive liberal policies, not climate change, are much to blame for these market dynamics.

39:00 Sen. Sheldon Whitehouse (D-RI): The first witness is Rade Musulin. Rade is an actuary with 45 years of experience in insurance, specializing in property pricing, natural perils, reinsurance, agriculture, catastrophe, risk modeling, public policy development, and climate risk. Specifically, he spent many years working in Florida, including as chair of the Florida Hurricane Catastrophe Fund Advisory Council during the time in which Citizens Property Insurance Corporation was established.

39:35 Sen. Sheldon Whitehouse (D-RI): Our second witness is Dr. Ishida Sen. Dr. Sen is an Assistant Professor at Harvard Business School. Her recent research examines the pricing of property insurance and the interactions between insurance and mortgage markets. This includes the role that institutions and the regulatory landscape play and the broader consequences for real estate markets, climate adaptation, and our overall financial stability.

40:00 Sen. Sheldon Whitehouse (D-RI): Our third witness is Deb Wood. Ms. Wood and her husband Dan McGrath are both retired Floridians. They moved to South Florida in 1979 and lived in Broward County, which includes Fort Lauderdale for 43 years until skyrocketing insurance premiums became too much. They now reside in Tallahassee, Florida.

40:35 Sen. Chuck Grassley (R-IA): Dr. EJ Antoni is a Research Fellow at the Heritage Foundation Grover M. Hermann Center for the Federal Budget. His research focuses on fiscal and monetary policy, and he previously was an economist at the Texas Public Policy Foundation. Antoni earned his Master’s degree and Doctor’s degree in Economics from Northern Illinois University.

41:10 Sen. Chuck Grassley (R-IA): Commissioner Glen Mulready has served as Oklahoma’s 13th Insurance Commissioner and was first elected to this position in 2019. Commissioner Mulready started his insurance career as a broker in 1984, and also served in the Oklahoma State House of Representatives.

42:15 Rade Musulin: Okay. My name is Ray Muslin. I’m an actuary who has extensive experience in natural hazard risks and funding arrangements for the damage and loss they cause. I’ve worked with many public sector entities on policy responses to the challenges of affordability, availability of insurance, and community resilience. This work included participating in Florida’s response to Hurricane Andrew, which included the creation of the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation. The Cat Fund and Citizens can access different forms of funding than traditional insurance companies. Instead of holding sufficient capital or reinsurance before an event to cover the cost of potential losses, both entities use public sources of capital to reduce upfront costs by partially funding losses post-event through bonding and assessments. All property casualty insurance policy holders, whether in Citizens or not, are subject to its assessments. While the Cat Fund can also assess almost all policies, including automobile, this approach exposes Floridians to debt and repayment if large losses occur, and it subsidizes high risk policies from the entire population. These pools, others like them in other states, and the NFIP have contributed to rapid development in high risk areas driving higher costs in the long run. In Florida, national insurers have reduced their exposure as a significant proportion of the insurance market has moved to Citizens or smaller insurers with limited capital that are heavily dependent on external reinsurance. To date, Florida’s system has been successful in meeting its claims obligations, while improvements in building codes have reduced loss exposure. However, for a variety of reasons, including exposure to hurricanes, claims cost inflation, and litigation, Florida’s insurance premiums are the highest in the nation, causing significant affordability stress for consumers. According to market research from Bankrate, the average premium for a $300,000 home in Florida is three times the national average, with some areas five times the national average. A major hurricane hitting a densely populated area like Miami could trigger large and long lasting post-event assessments or even exceed the system’s funding capacity. Continued rapid exposure growth and more extreme hurricane losses amplified by climate change will cause increasing stress on the nation’s insurance system, which may be felt through solvency issues, non-renewals, growth of government pools, and affordability pressure.

44:55 Rade Musulin: Evidence of increasing risk abounds, including Hurricane Otis in 2023, which rapidly intensified from a tropical storm to a cat. five hurricane and devastated Acapulco in Mexico last summer. Water temperatures off Florida exceeded a hundred degrees Fahrenheit last week. As was alluded to earlier, NOAA forecast an extremely active hurricane season for ’24. We’ve seen losses in the Mid-Atlantic from Sandy, record flooding from Harvey, and extreme devastation from Maria, among others. In coming decades, we must prepare for the possibility of more extreme hurricanes and coastal flooding from Texas to New England.

46:50 Dr. Ishita Sen: Good morning Senators. I am Ishita Sen, Assistant Professor at Harvard Business School and my research studies insurance markets. In recent work with co-authors at Columbia University and the Federal Reserve Board, I examine how climate risk creates fiscal and potentially financial instability because of miscalibrated insurer screening standards and repercussions to mortgage markets.

47:15 Dr. Ishita Sen: Insurance is critical to the housing market. Property insurers help households rebuild after disasters by preserving collateral values and reducing the likelihood that a borrower defaults. Insurance directly reduces the risks for mortgage lenders and the Government-Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac Mortgage Lenders therefore require property insurance and the GSEs only purchase mortgages backed by insurers who meet minimum financial strength ratings, which measure insurer solvency and ability to pay claims. The GSEs accept three main rating agencies AM Best, S & P and, more recently, Demotech. And to provide an example, Fannie Mae requires insurers to have at least a B rating from AM Best, or at least an A rating from Demo Tech to accept a mortgage. Now, despite having this policy in place, we find a dramatic rise in mortgages backed by fragile insurers and show that the GSEs and therefore the taxpayers ultimately shoulder a large part of the financial burden. Our research focuses on Florida because of availability of granular insurance market data, and we show that traditional insurers are exiting and the gap is rapidly being filled by insurers, rated by Demotech, which has about 60% market share in Florida today. These insurers are low quality across a range of different financial and operational metrics, and are at a very high risk of becoming insolvent. But despite their risk, these insurers secure high enough ratings to meet the minimum rating requirements set by the GSEs. Our analysis shows that many actually would not be eligible under the methodologies of other rating agencies, implying that in many cases these ratings are inflated and that the GSEs insurer requirements are miscalibrated.

49:20 Dr. Ishita Sen: We next look at how fragile insurers create mortgage market risks. So in the aftermath of Hurricane Irma, homeowners with a policy from one of the insolvent Demotech insurers were significantly more likely to default on their mortgage relative to similar borrowers with policies from stable insurers. This is because insurers that are in financial trouble typically are slower to pay claims or may not pay the full amounts. But this implies severe economic hardships for many, many Floridians despite having expensive insurance coverage in place. However, the pain doesn’t just stop there. The financial costs of fragile insurers go well beyond the borders of Florida because lenders often sell mortgages, for example, to the GSEs, and therefore, the risks created by fragile insurers spread from one state to the rest of the financial system through the actions of lenders and rating agencies. In fact, we show two reasons why the GSEs bear a large share of insurance fragility risk. First is that lenders strategically securitize mortgages, offloading loans backed by Demotech insurers to the GSEs in order to limit their counterparty risk exposures. And second, that lenders do not consider insurer risk during mortgage origination for loans that they can sell to the GSEs, even though they do so for loans that they end up retaining, indicating lax insurer screening standards for loans that can be offloaded to the GSEs.

50:55 Dr. Ishita Sen: Before I end, I want to leave you with two numbers. Over 90%. That’s our estimate of Demotech’s market share among loans that are sold to the GSEs. And 25 times more. That’s Demotech’s insolvency rate relative to AM Best, among the GSE eligible insurers.

57:15 Glen Mulready: As natural disasters continue to rise, understanding the dynamics of insurance pricing is crucial for both homeowners and policymakers. Homeowners insurance is a fundamental safeguard for what is for many Americans their single largest asset. This important coverage protects against financial loss due to damage or destruction of a home and its contents. However, recent years have seen a notable increase in insurance premiums. One significant driver of this rise is convective storms and other severe weather events. Convective storms, which include phenomena like thunderstorms, tornadoes, and hail, have caused substantial damage in various regions. The cost to repair homes and replace belongings after such events has skyrocketed leading insurance companies to adjust their premiums to cover that increased risk. Beyond convective storms, we’ve witnessed hurricanes, wildfires, and flooding. These events have not only caused damage, but have also increased the long-term risk profile of many areas. Insurance companies are tasked with managing that risk and have responded by raising premiums to ensure they can cover those potential claims.

58:30 Glen Mulready: Another major factor influencing homeowner’s insurance premiums is inflation. Inflation affects the cost of building materials, labor, and other expenses related to home repair and reconstruction. As the cost of living increases, so does the cost of claims for insurers. When the price of lumber, steel, and other essential materials goes up, the expense of repairing or rebuilding homes also rises. Insurance companies must reflect these higher costs in their premiums to maintain financial stability and ensure they can meet those contractual obligations to policyholders.

59:35 Glen Mulready: I believe the most essential aspect of managing insurance premiums is fostering a robust, competitive free market. Competition among insurance companies encourages innovation and efficiency, leading to better pricing and services for consumers. When insurers can properly underwrite and price for risk, they create a more balanced and fair market. This involves using advanced data analytics and modeling techniques to accurately assess the risk levels of different properties. By doing so, insurance companies can offer premiums that reflect the true risk, avoiding excessive charges for low risk homeowners, and ensuring high risk properties are adequately covered. Regulation also plays a crucial role in maintaining a healthy insurance market. Policyholders must strike a balance between consumer protection and allowing insurers the freedom and flexibility to adjust their pricing based on the risk. Overly stringent regulations can stifle competition and lead to market exits, reducing choices for consumers. We’ve seen this play out most recently in another state where there were artificial caps put in place on premium increases that worked well for consumers in the short term, but then one by one, all of the major insurers began announcing they would cease to write any new homeowners insurance in that state. These are all private companies, and if there’s not the freedom and flexibility to price their products properly, they may have to take drastic steps as we’ve seen. Conversely, a well-regulated market encourages transparency and fairness, ensuring that homeowners have access to the most affordable and adequate coverage options.

1:02:00 Dr. EJ Antoni: I’m a public finance economist and the Richard F. Aster fellow at the Heritage Foundation, where I research fiscal and monetary policy with a particular focus on the Federal Reserve. I am also a senior fellow at the Committee to Unleash Prosperity.

1:02:15 Dr. EJ Antoni: Since January 2021, prices have risen a cumulative 19.3% on average in the American economy. Construction prices for single family homes have risen much faster, up 30.5% during the same time.

1:03:20 Dr. EJ Antoni: Actuarial tables used in underwriting to estimate risk and future losses, as well as calculate premiums, rely heavily on those input costs. When prices increase radically, precisely as has happened over the last several years, old actuarial tables are of significantly less use when pricing premiums because they will grossly understate the future cost to the insurer. The sharp increase in total claim costs since 2019 has resulted in billions of dollars of losses for both insurers and reinsurers prompting large premium increases to stop those losses. This has put significant financial stress on consumers who are already struggling with a cost of living crisis and are now faced with much higher insurance premiums, especially for homeowners insurance.

1:05:10 Dr. EJ Antoni: The increase in claims related to weather events has undoubtedly increased, but it is not due to the climate changing. This is why the insurance and reinsurance markets do not rely heavily on climate modeling when pricing premiums. Furthermore, climate models are inherently subjective, not merely in how the models are constructed, but also by way of the inputs that the modeler uses. In other words, because insufficient data exists to create a predictive model, a human being must make wide ranging assumptions and add those to the model in place of real world data. Thus, those models have no predictive value for insurers.

1:07:40 Sen. Sheldon Whitehoue (D-RI): You say that this combination of demographics, development, and disasters poses a significant risk to our financial system. What do you mean by risk to our financial system Rade Musulin: Well, Senator, if you look at the combination, as has been pointed out, of high growth and wealth accumulation in coastal areas, and you look at just what we’ve observed in the climate, much less what’s predicted in the future, there is significant exposure along the coastline from Maine to Texas. In fact, my family’s from New Jersey and there is enormous development on the coast of New Jersey. And if we start to get major hurricanes coming through those areas, the building codes are probably not up to the same standards they are in Florida. And we could be seeing some significant losses, as I believe was pointed out in the recent Federal Reserve study. Sen. Sheldon Whitehoue (D-RI): And how does that create risk to the financial system? Rade Musulin: Well, because it’s sort of a set of dominoes, you start with potentially claims issues with the insurers being stressed and not able to pay claims. You have post-event rate increases as we’ve seen in Florida, you could have situations where people cannot secure insurance because they can’t afford it, then that affects their mortgage security and so on and so forth. So there are a number of ways that this could affect the financial system, sir. Sen. Sheldon Whitehoue (D-RI): Cascading beyond the immediate insurer and becoming a national problem. Rade Musulin: Well, I would just note Senator, that in Florida, the real problems started years after we got past Andrew. We got past paying the claims on Andrew, and then the big problems occurred later when we tried to renew the policies.

1:10:50 Sen. Sheldon Whitehouse (D-RI): And you see in this, and I’m quoting you here, parallels in the 2008 financial crisis. What parallels do you see? Dr. Ishita Sen: So just like what happened during the financial crisis, there were rating agencies that gave out high ratings to pools of mortgages backed by subprime loans. Here we have a situation where rating agencies like Demotech are giving out inflated ratings to insurance companies. The end result is sort of the same. There is just too much risk and too many risky mortgages being originated, in this case backed by really low quality insurers that are then entering the financial system. And the consequences of that has to be born by, of course the homeowners, but also the mortgage owners, GSCs (Government Sponsored Enterprises), the lenders, and ultimately the federal and state governments. Sen. Sheldon Whitehouse (D-RI): You say, this will be my last question. The fragility of property insurers is an important channel through which climate risk might threaten the stability of mortgage markets and possibly the financial system. What do you mean when you refer to a risk to the financial system? Dr. Ishita Sen: Well, as I was explaining the GSEs, if there are large losses that the GSEs face, then those losses have to be plugged by somebody. So the taxpayers, that’s one channel through which you’ve got risk to the financial system and the GSE’s serve as a backstop in the mortgage market. They may not have the ability or capacity to do so in such a scenario, which affects mortgage backed security prices, which are held by all sorts of financial institutions. So that starts affecting all of these institutions. On the other hand, if you’ve got a bunch of insurers failing, another channel is these insurers are one of the largest investors in many asset classes like corporate bonds, equities, and so on. And they may have to dump these securities at inopportune times, and that affects the prices of these securities as well.

1:12:45 Sen. Chuck Grassley (R-AI): Dr. Antoni, is there any evidence to support the notion that climate change is the greatest threat to the insurance market? Dr. EJ Antoni: No. Senator, there is not. And part of that has to do again, with the fact that when we look at the models that are used to predict climate change, we simply don’t have enough empirical data with which we can input into those models. And so as a result of that, we have to have human assumptions on what we think is going to happen based essentially on a guess. And as a result of that, these models really are not of any predictive value, and that’s why these models for the last 50 years have been predicting catastrophic outcomes, none of which have come true.

1:14:45 Glen Mulready: This focus on the rating agencies, I would agree with that if that were the be all end all. But the state insurance commissioners in each 50 states is tasked with the financial solvency of the insurance companies. We do not depend on rating agencies for that. We are doing financial exams on them. We are doing financial analysis every quarter on each one of them. So I would agree if that was the sort of be all end all, forgive that phrase, but it’s not at all. And we don’t depend very much at all on those rating agencies from our standpoint.

1:22:15 Dr. Ishita Sen: On the point about regulators looking at — rating agencies is not something that we need to look at. I would just point out that in Florida, if you look at the number of exams that the Demotech rated insurers, that by the way have a 20% insolvency rate relative to 0% for traditional insurers, they get examined at the same rate as the traditional insurers like Farmers and AllState get examined, which is not something that you would expect if you’re more risky. You would expect regulators to come look at them much, much more frequently. And the risk-based capital requirements that we have currently, which were designed in the 1980s, they’re just not sensitive enough to new risks like wildfire and hurricanes and so on. And also not as well designed for under-diversified insurance companies because if so, all of these insurers were meeting the risk-based capital requirements, however, at the same time going insolvent at the rate of 20%. So those two things don’t really go hand in hand.

1:23:25 Dr. Ishita Sen: Ultimately what the solution is is something that is obviously the main question that we are here to answer, but I would say that it is extremely hard to really figure out what the solution is, in part because we are not in a position right now to even answer some basic facts about how big the problem is, what exactly the numbers look like. For instance, we do not know basic facts about how much coverage people have in different places, how much they’re paying. And when I say we don’t know, we don’t know this at a granular enough level because the data does not exist. And the first step towards designing any policy would be for us to know exactly how bad the problem is. And then we come up with a solution for that and start to evaluate these different policy responses. Right now we are trying to make policy blindfolded.

1:23:50 Sen. Ron Johnson (R-WI): So we’ve had testimony before this committee that we’ve already spent $5-6 trillion. That’s 5,000 to 6,000 billion dollars trying to mitigate climate change. We haven’t made a dent in it. Their estimates, it’s going to cost tens of trillions of dollars every year to reach net zero. So again, this is not the solution for a real problem, which is the broken insurance market. I have enough Wisconsin residents who live on the Gulf Coast in Florida to know after Hurricane Ian, you got some real problems in Florida. But fixing climate change isn’t the solution.

1:33:15 Sen. Jeff Merkley (D-OR): In looking at the materials I saw that Citizens Property Insurance Company, I gather that’s Louisiana and Florida, that have a completely state backed program. Well, alright, so if the state becomes the insurer of last resort and they now suffer the same losses that a regular private insurance company is suffering, now the folks in the state are carrying massive debt. So that doesn’t seem like a great solution. Dr. Ishita Sen: That’s definitely a problem, right? The problem is of course, that whether the state then has the fiscal capacity to actually withstand a big loss, like a big hurricane season, which is a concern that was raised about Citizens. And in such a scenario then in a world where they do not have enough tax revenue, then they would have to go into financial markets, try to borrow money, which could be very costly and so on. So fiscally it’s going to be very challenging for many cities and many municipalities and counties and so on.

1:36:40 Sen. Mitt Romney (R-UT): I wish there were something we could do that would reduce the climate change we’re seeing and the warming of the planet. But I’ve seen absolutely nothing proposed by anyone that reduces CO2 emissions, methane gases and the heating of the planet. Climate change is going to happen because of the development in China and Indonesia and Brazil, and the only thing that actually makes any measurable impact at all is putting a price on carbon, and no one seems to be willing to consider doing that. Everything else that’s being talked about on the climate — Democratic Senator: I got two bills. Sen. Mitt Romney (R-UT): I know you and I are, but you guys had reconciliation. You could have done it all by yourselves and you didn’t. So the idea that somehow we’re going to fix climate and solve the insurance problem is pie in the sky. That’s avoiding the reality that we can’t fix climate because that’s a global issue, not an American issue. Anyway, let me turn back to insurance.

1:38:30 Sen. Mitt Romney (R-UT): So the question is, what actions can we take? Fiscal reform? Yes, to try and deal with inflation. Except I want to note something, Mr. Antoni, because you’re esteemed at the Heritage Foundation. 72% of federal spending is not part of the budget we vote on. So we talk about Biden wants to spend all this…. 72% we don’t vote on; we only vote on 28%. Half of that is the military. We Republicans want more military spending, not less. So that means the other 14%, which the Democrats want to expand, there’s no way we can reduce the 14% enough to have any impact on the massive deficits we’re seeing. So there’s going to have to be a broader analysis of what we have to do to reign in our fiscal challenges. I just want to underscore that. I would say a second thing we can do, besides fiscal reform and dealing with inflation, is stopping subsidizing high risk areas. Basically subsidizing people to build expensive places along the coast and in places that are at risk of wildfire. And we subsidize that and that creates huge financial risk to the system. And finally, mitigation of one kind or another. That’s the other thing we can do is all sorts of mitigation: forestry management, having people move in places that are not high risk. But if you want to live in a big house on the coast, you’re gonna have to spend a lot of money to insure it or take huge risk. That’s just the reality. So those are the three I come up with. Stop the subsidy, mitigation, and fiscal reform. What else am I missing, Mr. Musulin? And I’m just going to go down the line for those that are sort of in this area to give me your perspectives. Rade Musulin: Well, thank you, Senator. And I’d agree with all those things. And I’d also add that we need to start thinking about future-proofing our building codes and land use policies. The sea levels are rising. If you’re going to build a house that’s supposed to last 75 years, you ought to be thinking about the climate in 75 years when you give somebody a permit to build there. So I’d say that’s important. I’d also say that large disasters also drive inflation because it puts more pressure and demand on labor and materials. More disasters means supplies that could have been used to build new homes for Americans or diverted to rebuild homes in the past. So certainly doing things to reduce the vulnerability of properties and improve their resilience is important. And I do think, sir, that there are things we can do about climate change with respect over periods of decades that can make a difference in the long run. Thank you. Sen. Mitt Romney (R-UT): Thank you. Yes. Dr. Ishita Sen: So before that, the one point about inflation that we are missing, which is without doubt it is a contributing factor, but the US has had inflation in the past without such an acute crisis in insurance markets. So whether that is the biggest cause or not is up for debate. I don’t think we have reached a conclusion on inflation being the biggest contributor of rising insurance cost. Sen. Mitt Romney (R-UT): It’s just a big one. You’d agree It’s a big one? Dr. Ishita Sen: I agree. It’s a big one, but I wouldn’t say it’s the biggest one in terms of policy solutions. I completely agree with you on, we need to stop subsidizing building in high risk areas. That’s definitely one of the things we need to do that. Mitigation, another point that you bring up. And on that, I would say not only do we need to harden our homes, but we also need to harden our financial institutions, our banks, and our insurance companies in order to make them withstand really large climate shocks that are for sure coming their way. Sen. Mitt Romney (R-UT): Thank You, Ms. Wood. I’m going to let you pass on this just because that’s not your area of expertise. Your experience was something which focused our thinking today. Mr. Mulready. Glen Mulready: Thank you, Senator. I would say amen to your comments, but I’ll give you three quick things. Number one, FEMA has a survey out that states that every $1 spent in mitigation saves $6 in lost claims. It pays off. Number two, unfortunately, a lot of communities have to have a disaster happen. In Moore, Oklahoma, back a dozen years ago, an EF5 (tornado) hit, it was just totally devastating. After that, the city of Moore changed their zoning, they changed their building zoning codes, and then third, the city of Tulsa, back in the eighties, had horrible flooding happened. So they invested over decades in infrastructure to prevent flooding. Now we’re one of only two communities in the country that are Class one NFIP rated.

1:45:40 Sen. Chris Van Hollen (D-MD): One way to address this, and I think it was discussed in a different matter, is the need to get the data and to get consensus on where the risks lie, which is why last year Senator Whitehouse, Senator Warren and I sent a letter to the Treasury Department, to the Federal Insurance Office (FIO), urging them to collect information from different states. I’m a supporter of a state-based insurance system for property and casualty insurance, but I do think it would benefit all of us to have a sort of national yardstick against which we can measure what’s happening. So Dr. Sen, could you talk a little bit about the benefit of having a common source of insurance data through the FIO and how that could benefit state regulators and benefit all of us? Dr. Ishita Sen: Yeah, absolutely. Thanks for bringing that up. That’s just the first order importance, I think, because we don’t even know the basic facts about this problem at a granular enough level. The risks here are local, and so we need to know what’s going zip code-by-zip code, census tract-by-census tract, and for regulators to be able to figure out exactly how much risk is sitting with each of these insurance companies they need to know how much policies they’re writing, what’s the type of coverage they’re selling in, what are the cancellations looking like in different zip codes. Only then can they figure out exactly how exposed these different insurers are, and then they can start designing policy about whether the risk-based capital ratios look alright or not, or should we put a surcharge on wildfires or hurricanes and so on? And we do need a comprehensive picture. We just can’t have a particular state regulator look at the risks in that state, because of course, the insurer is selling insurance all over the country and we need to get a comprehensive picture of all of that.

1:47:40 Sen. Chris Van Hollen: I appreciate that. I gather that the Treasury Department is getting some resistance from some state insurance regulators. I hope we can overcome that because I’m not sure why anyone would want to deny the American people the benefit of the facts here.

1:48:45 Rade Musulin: I will just note that sometimes climate change itself can contribute to the inflation we’ve been talking about. For example, there were beetle infestations and droughts and fires in Canada, which decimated some of the lumber crop and led to a fivefold increase in the cost of lumber a few years ago. So some of this claims inflation is actually related to climate change, and I think we need to address that.

1:49:35 Glen Mulready: If you didn’t know, the NAIC, National Association of Insurance Commission is in the midst of a data collection right now that will collect that data for at least 80% of the homeowner’s market. And we have an agreement with FIO (Federal Insurance Office) to be sharing that data with them. They originally came to us, I got a letter from FIO and they were requesting data that we did not actually collect at the zip code level, and they had a very stringent timeline for that. So my response, it wasn’t, no, it was just, look, we can’t meet that timeline. We don’t collect that today. We can in the future. But from that is where this has grown the data called by the NEIC. Sen. Chris Van Hollen (D-MD): So I appreciate, I saw that there had been now this effort on behalf of the….So has this now been worked out? Are there any states that are objecting, to your knowledge at this point in time, in terms of sharing data? Glen Mulready: I don’t know about specific states. We will be collecting data that will represent at least 80% of the market share.


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