Senators debate solutions to rising home insurance prices amid record-setting year for damage

WASHINGTON (TND) — Lawmakers in Washington sought ideas for possible solutions to a growing issue for homeowners in various parts of the country: increasing home insurance prices or a lack of options at all as companies close shop in areas prone to natural disasters.

The Senate hearing comes after Hurricane Idalia and wildfires in Maui caused billions more in damages in what has already been a record-setting year for weather-induced destruction to property.

The first half of the year brought $34 billion in insured losses from storms, a record-setting sum according to reinsurance company Swiss Re. Storms were so severe in the U.S. that there were 10 that individually resulted in damages of at least $1 billion, nearly double the average over the past decade.

Initial estimates of damage from Hurricane Idalia are around $9 billion, which comes after large insurance companies announced they were leaving Florida citing the growing cost of natural disasters and construction.

A wave of insurers have opted to pull out of several states, including Florida and California, as natural disasters like hurricanes and wildfires continue to wreak havoc on homes. For insurers that opt to stay in the market, premiums have spiked and policies offer less coverage.

“Increasingly, homeowners have faced an unpleasant surprise when it's time to renew their policies,” said Sen. Sherrod Brown, D-Ohio. “Homeowners who spent years making their payments regularly without fail are shocked to find their insurance insurer has raised costs, has limited coverage or in too many cases won't renew their policy at all.”

Millions of homeowners across the country are having to find a new insurance company after learning their provider is dropping them or pulling out of their state altogether. Replacements typically come with higher premiums and deductibles while also offering less protection.

Along with more damage from weather and climate-related disasters, inflation has also made it significantly more expensive to pay to repair or rebuild buildings that are damaged and destroyed during storms. The added costs for construction add on to the cost burden insurance companies are deciding is too much to operate in some states.

“Without insurance, millions of families will be at greater risk for climate crises and as whole communities lose access to insurance, the impact is going to be felt all the way through our economy,” said Sen. Elizabeth Warren, D-Mass.

Lawmakers heard from Douglas Heller, director of insurance at the Consumer Federation of America; Michelle Norris, executive vice president of external affairs and strategic partnerships at National Church Residences; and Jerry Theodorou, policy director of finance insurance and trade at the R Street Institute.

Some Republican senators pointed to regulatory frameworks created by the states as part of the issue, making it overly burdensome for insurance companies to operate or adjust prices to calculate for risk.

“Insurance companies have to follow the basic rules of economics like any other business and that's one of the challenges that we see, particularly in states like California and Florida,” said Sen. Tim Scott, R-S.C. “It makes it very difficult for insurance companies to make a profit in those states and when you can't make a profit, you don't stay in those states.”

In California, insurance companies have to get any premium increases approved based on the average losses over the last 20 years. Theodorou pointed to Proposition 103 as one of the main hurdles to California’s insurance crisis.

“This is like forbidding a doughnut maker to change the price of its doughnuts, irrespective of flour and sugar costs,” he said.

Sen. Tom Tillis, R-N.C., questioned whether further centralized regulations from Congress could help address the root issues of the cost of insurance.

Adding to the issues are rising costs in the reinsurance market, where insurance companies get insurance for their own risks, which have skyrocketed this year. Witnesses told lawmakers that the reinsurance market is a driving factor behind companies’ decisions to leave markets.

Rising insurance costs are also burdening renters through higher monthly payments and the owners of multifamily buildings and is putting a damper on efforts to expand affordable housing.

“High insurance costs are also hindering solutions to the affordable housing crisis. Rising insurance costs mean lower net operating income to support debt or equity returns,” Norris said. “If you can't borrow as much or attract less investment, it becomes even more difficult to finance the construction and preservation of the current affordable housing communities.”

The hearing also comes as Congress’ time to avoid a lapse in the National Flood Insurance Program is ticking away as hurricane season gets going. Authorization for the NFP will expire on Sept. 30 without action from Congress that could be at risk as lawmakers are still far apart on reaching a deal to avoid a government shutdown.

Previously issued policies would still be active if the program isn’t authorized in time, but it would be unable to issue new ones and have funding constraints as tropical storms and hurricanes become more prevalent.

“It’s very important that we get it renewed. I think it's an important aspect for a lot of areas particularly where the risk is high,” Sen. Mike Rounds, R-N.D., said during the hearing.