NAMIC: Climate Change Fueling Increased Risks, but Other Factors Contribute to Rising Costs

Consumers face a new era of risk as climate-fueled weather events expose some fundamental shortfalls in the insurance marketplace, the National Association of Mutual Insurance Companies said in testimony before the Senate Banking Committee.

Insurers had a net underwriting loss of $5 billion in 2021, which shot up to $26.5 billion last year, and it’s likely 2023 will be worse, the association noted in testimony submitted to the committee for its Sept. 7 hearing. Further, a report from Swiss Re found severe convective storms caused $34 billion in insured losses in the U.S. in the first half of 2023, equating to 68 percent of global natural catastrophe losses.

“Extreme weather fueled by climate change has been a major cause of those losses, but it’s not the only cause,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC. “Shifting population, economic conditions, reinsurance costs, and the regulatory or legal environment – all of these have contributed to rising costs for insurers and consumers. As climate change leads to more severe weather events, it has exposed and exacerbated those issues to the point where they can’t be ignored.”

More and more Americans are moving to vulnerable or high-risk areas. An analysis by NerdWallet combining data from the U.S. Census Bureau and Federal Emergency Management Agency’s National Risk Index found two of the top 10 fastest-growing counties are considered very high risk for natural disasters, while the remaining eight are relatively high risk. Additionally, counties facing the highest risk of wildfire and flooding have seen a population bump since the COVID-19 pandemic, according to the real estate website Redfin.

“Increasingly, people are moving into harms way, and that’s increasing property values as well as driving up demand for materials, and thus costs for construction – or reconstruction – even before you factor in inflation or supply chain issues,” Grande said. “We can encourage stronger building and community mitigation projects, but that can only do so much. Land use and controls on development in environmentally sensitive areas need to be a key part of this conversation. Otherwise, we are just putting more properties and lives at risk.”

The legal and regulatory environment, too, can be a risk factor, NAMIC noted in its testimony. Florida has 9 percent of homeowner property claims but accounts for an astonishing 79 percent of lawsuits filed nationwide related to property claims. The Legislature recently enacted significant reforms to help ease the problem, but those will take time to have an impact; however, exacerbating the state's distressed insurance market were the roughly 280,000 suits filed by trial lawyers in the days before the reforms went into effect.

State insurance markets are also sometimes negatively impacted by their own regulators. Guiding principles for a healthy insurance marketplace should include flexibility on behalf of regulators and industry alike with swift and fair rate adjustments that align with the risk and costs, which fundamentally ensures solvency and fosters consumer protection.

Going forward, the association urges Congress to focus federal efforts on reducing risk through increased funding for mitigation grants and focusing on preventing losses rather than recovering from them, while recognizing that the costs for insurance coverage inevitably follow the costs of the risks being insured.

“Ultimately, costs are rising for everyday items like groceries and gasoline, and for building materials and vehicle parts, and as a result, the cost to insure what we own also will go up,” Grande said. “All of these issues, including increasing climate risk and the current legal and regulatory environment, play a part in it, and there needs to be a responsible conversation about risk management without distracting political undertones that do not help consumers or move the conversation in a productive direction. The only way to deal with these dynamics is to first understand the full picture of what is happening and for all market participants to acknowledge increased risks across the board.”

Article Posted: 09.06.23
Last Updated: 09.11.23


Matt Brady
Senior Director of Advocacy Communications