States Lead the Way on Better Insurance Markets
Most homeowning Americans consider their home their most valuable asset. This means that the changes happening in the property insurance market – which safeguards this asset – are critically impacting Americans and their financial security.
While the market remains robust overall, challenges such as inflationary pressures, rising construction costs, litigation, and more severe and frequent natural disasters are casting shadows over the property insurance landscape. These factors not only affect insurance costs but also how many insurers are doing business in your area, ultimately influencing consumer satisfaction.
How can we address these issues facing a $152 billion market that underpins America’s economic health? One critical factor is the creativity, ingenuity and collaboration of the states themselves.
The effectiveness of the U.S. state-based insurance regulatory framework in safeguarding consumers and ensuring market solvency is rooted in states’ ability both to act collectively when needed on national issues and to adapt and innovate to unique local circumstances and market conditions. America’s 56 insurance commissioners and their teams are working to ensure that climate-related risks are appropriately addressed and also to strengthen the insurance market and the economy at large. Nearly 11,000 insurance regulators are supporting efforts to both expand coverage and lower risk, making coverage more attainable for consumers and markets more stable.
Consumer Education and a Call to Action
Informed consumers make better decisions. That’s why helping homeowners understand their insurance policies and coverage is so important and a core component of what insurance regulators do every day. These educational efforts focus on informing the public about key insurance principles, terms and consumer rights. Commissioners are also taking steps to help consumers reduce losses and speed up recovery from natural disasters to keep insurance accessible all around the country.
Policyholders can also take action before they have a loss. In fact, there are creative state-based pre-disaster mitigation efforts that are geographically specific that provide opportunities for consumers to improve their property’s resilience to extreme weather and help mitigate their risk – and qualify for insurance premium discounts.
For example, the California Safer From Wildfires program provides premium incentives for reducing wildfire risk through home hardening. Starting next year, the Strengthen Oklahoma Homes Program will provide grants to homeowners to outfit their home to the Insurance Institute for Business & Home Safety (IBHS) Fortified standard for roofs that can withstand high winds and hail. Homeowners who qualify could be eligible for insurance discounts of up to 42% on the wind portion of their premium.
Kentucky’s Department of Insurance has established a similar grant program for homeowners in the state who fortify their homes to the IBHS standard. And the Louisiana Fortify Homes program offers up to $10,000 in grants for homeowners to upgrade their roofs to better withstand hurricane-force winds.
Measures such as improved building codes, risk assessments and disaster preparedness plans can mitigate the economic strains imposed by weather-related events on consumers and insurers alike. These are all steps toward ensuring that property insurance is accessible, even in parts of the country that face more severe weather events or natural disasters than lower risk areas.
Fair Pricing and Consumer Protections
Amid inflation and rising costs, fair pricing remains a cornerstone of the state-based regulatory philosophy. State insurance regulators scrutinize insurers’ financial performance and insurance pricing to ensure the rates being charged are reasonable for the risks insurers absorb on homeowners’ behalf. At the same time, we recognize the need for insurers to charge adequate rates to cover losses and remain solvent – the balance is delicate. Insurance costs reflect the underlying cost of claims, which include construction materials, underlying home values, the cost and availability of labor, the impact of litigation, and other factors. Put another way, insurance claims reveal the cost of replacing or repairing the things we insure, which in turn is reflected in the price we pay for coverage.
State insurance commissioners ensure claims are handled promptly and fairly, safeguarding consumer rights and maintaining a transparent marketplace. When disputes arise, state insurance departments offer mediation and investigation services, advocating for fairness and accountability and rooting out fraud. By regulating with a forward-looking approach, they encourage healthy competition among insurers, which can lead to more creative, efficient and consumer-friendly insurance solutions. This competitive landscape is what ultimately keeps premiums reasonable and drives insurers to improve their offerings.
Financial Stability of Property Insurance Markets
Ultimately, the goal of insurance is to provide financial security, a mission that has become increasingly challenging and even more important with the unpredictability introduced by economic volatility, climate risk and increasing frequency and severity of natural disasters.
State insurance commissioners are instrumental in guiding insurance practices that accommodate these changes while maintaining market stability.
Insurers are also no longer relying solely on historical loss data to predict future losses – many now leverage sophisticated catastrophe models that factor in severe weather, the density and construction quality of housing, and other economic variables.
To keep pace, regulators have created the Catastrophe Modeling Center of Excellence within the National Association of Insurance Commissioners’ Center for Insurance Policy and Research to evaluate catastrophe model usage. Risk assessment is a foundational tool to identify potential economic and insurance market disruption and can be applied to support policy and legislative action to reduce the risk.
Homeownership is not just a primary asset for many Americans today but also a way to create wealth that can be passed on to the next generation. This source of wealth is caught in the crossfires of rising inflation and the increasing frequency and severity of natural disasters.
Insurance pricing and availability exists at the intersection of these escalating forces, and state regulators work every day to ensure that despite these pressures, consumers are treated fairly, and U.S. insurers remain strong, solvent and competitive.