Consumers and insurers have been concerned about increasing insurance rates for the last few years. Congress is now concerned and a week ago the House Financial Services Committee’s Subcommittee on Housing and Insurance held a hearing on insurance rates. It was titled the Factors Influencing the High Cost of Insurance for Consumers.
Is it too little, too late? Time will tell. Besides, Congress and the federal government have very little control over insurance rates. As most of you know, and as most members of Congress don’t know, and most individuals don’t know, Congress doesn’t regulate insurance rates.
That is done at the state level via the McCarran-Ferguson Act of 1945.
Robert Gordon is the senior vice president, policy, research and international for the American Property Casualty Insurance Association (APCIA). He testified and tried to explain to the members of the subcommittee how insurance works.
Gordon told the subcommittee that the cost of catastrophes and individual incidents and other exposures is rising faster than insurance companies can raise their rates, and that insurance regulators in the individual states are not allowing the necessary increases.
He noted that some strong leadership is needed going forward if the insurance industry is to overcome the losses it has faced in the last few years and Gordon pointed out that in the first eight months of 2023, the U.S. has experienced over $24 billion in weather-related losses.
That’s a record. Yet, regulators at the state level are not allowing insurers to keep up.
“The number one driver of property losses has been the accumulation of asset values in high-climate-risk regions as more people are moving into buildings in areas with high hurricane and wildfire risk that have become more expensive to rebuild,” Gordon told the subcommittee. “Losses are also being driven by economic inflation, climate change, and legal system abuse.”
All of this — inflation, climate change and legal system abuse — needs to be addressed and quickly.
“Insurance availability can be best improved by allowing competitive private markets to actuarially price risk according to expected costs, while reducing government rate suppression and policy form constraints,” Gordon added.
He told the subcommittee that insurers are supporting programs that assist the battle with climate change. Insurers have worked hard on wildfire mitigation programs and have supported the administration’s Wildland Fire Mitigation and Management Commission.
Insurers — Gordon said — have also worked to improve vehicle and highway safety standards.
“Insurers’ core business is protecting people and helping them recover from catastrophic losses to their homes, cars, and businesses. Insurers remain committed to our policyholders and American consumers,” he concluded. “But insurance markets are facing very strong challenges that will require strong leadership to overcome.”
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