Lack of US insurance data hides scale of climate-related price hikes and coverage gaps

June 11, 2024|Written by

A lack of data on insurance coverage and climate risk is one of the biggest challenges US banks identified in the Federal Reserve’s recent climate scenario analysis. A joint data collection effort between the National Association of Insurance Commissions (NAIC) and the US Treasury Department’s Federal Insurance Office (FIO) is meant to help close that data gap, but a lack of transparency means the data may not be publicly available.

Nonprofits and researchers are advocating for the data to be released to the public so assessments and recommendations on insurance coverage can be made. With climate change creating more extreme weather events and insurance premiums skyrocketing across the country, advocates say this data is essential to understanding the broader financial impacts, especially as more homeowners are opting to go without insurance.

“The insurance industry may have been aware this was coming, but the rest of us are trying to catch up, including the government. Even banking institutions are being caught unaware of how much this insurance crisis was coming,” said Jessica Garcia, senior policy analyst at Americans for Financial Reform.

The data collection is voluntary and some states have opted out of submitting data. At least 10 states appear to not be participating in the data collection, including Florida, Louisiana and Texas. While there may be benefits to the NAIC collecting the data, they did not get all states to participate, which means there “is a huge gap” in data, said Garcia.

“Consumers are desperate for policy change, and we can’t even get the basic data that we need in order to make the right moves and the right decisions on this as climate change worsens,” she said.

Insurance in the US is regulated at the state level, which makes data collection difficult. Researchers have no way of knowing how many people are covered and if their cover is adequate.

“The insurance industry has been really successful at preventing regulatory scrutiny of its practices,” said Moira Birss, research and policy fellow at policy thinktank the Climate and Community Project.

More local data is needed to get a better idea of where and why insurance premiums are increasing. The fact that insurance rates are rising tells “a very limited story about what’s actually going on”.

“Policymakers themselves… need [this data] in order to really understand the nuances of this crisis and to propose policy solutions that will actually address the problem rather than just apply Band-Aids,” she said.

Many researchers would like to see insurance data be required in the same way that mortgage lenders need to release granular data on their loans, such as ethnicity, race, gender and gross income. While the industry has pushed back on releasing this data, saying it would be a violation of privacy, researchers say the fact that mortgage lenders are able to release data anonymously proves it can be done.

Another issue is whether the data will capture state-run insurance markets, said Lilith Fellowes Granda, associate director at the Center for American Progress. Many states have state-run insurance companies to cover homeowners who are otherwise unable to get coverage to fulfill insurance requirements set by mortgage lenders.

“Pressure on [state-run insurers] has grown significantly as private insurers have pulled back. And that’s problematic for a lot of reasons because they are expensive and don’t offer very good coverage,” she said.

Ultimately, the US may need to reconsider the original purpose of insurance which “emerged out of mutual aid societies” where individuals would pool their resources to help others in need, said Birss.

Instead, today the insurance industry is about making a profit, and insuring housing and affordability comes second, she said.

“I think it’s worth asking ourselves, why that? Why can’t we think about an option that is about protecting housing safety and affordability and not just as a secondary thing to company profits, particularly when we’re talking about something so essential as housing?”

This page was last updated June 11, 2024

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