Every American who has a mortgage is required by their bank to have homeowners insurance, but getting it and keeping it is becoming a challenge. In this episode, hear the highlights of a Senate hearing examining the problems in the homeowners insurance market and why they might lead to much bigger problems next time disaster strikes. Please Support Congressional Dish – Quick Links Contribute monthly or a lump sum via Support Congressional Dish via (donations per episode) Send Zelle payments to: Donation@congressionaldish.com Send Venmo payments to: @Jennifer-Briney Send Cash App payments to: $CongressionalDish or Donation@congressionaldish.com Use your bank’s online bill pay function to mail contributions to: Please make checks payable to Congressional Dish Thank you for supporting truly independent media! Background Sources Effects of Climate on Insurance Christopher Flavelle and Mira Rojanasakul. May 13, 2024. The New York Times. Chris Van Hollen et al. September 7, 2023. Chris Van Hollen, U.S. Senator for Maryland. Alice C. Hill. August 17, 2023. Council on Foreign Relations. Insurance Information Institute. Antonio Grimaldi et al. November 19, 2020. McKinsey & Company. Lobbying OpenSecrets. OpenSecrets. OpenSecrets. Heritage Foundation SourceWatch. Demotech William Rabb. April 15, 2024. Insurance Journal. Parinitha Sastry et al. December 2023. Fannie Mae Adam Hayes. May 17, 2023. Investopedia. Hurricanes National Oceanic and Atmospheric Administration. National Oceanic and Atmospheric Administration. Audio Sources Senate Committee on the Budget June 5, 2024 Witnesses: Glen Mulready, Insurance Commissioner, State of Oklahoma Rade Musulin, Principal, Finity Consulting Dr. Ishita Sen, Assistant Professor of Finance, Harvard Business School Deborah Wood, Florida Resident , Research Fellow, Heritage Foundation’s Grover Hermann Center for the Federal Budget Clips 23:05 Sen. Sheldon Whitehouse (D-RI): In 2022 and 2023, more than a dozen insurance companies left the Florida residential market, including national insurers like Farmers. Residents fled to Citizens Property Insurance, the state backed insurer of last resort, which ballooned from a 4% market share in 2019 to as much as 17% last year. If it has to pay out claims that exceed its reserves, citizens can levy a surcharge on Florida insurance policy holders across the state. Good luck with that. Particularly if the surcharge grows to hundreds or even thousands of dollars to depopulate its books. Citizens has let private insurers cherry pick out its least risk policies. Those private insurers may have problems of their own, as we will hear today. 25:10 Sen. Sheldon Whitehouse (D-RI): The federal budget takes a hit because these insurers and their policies are accepted by Freddie Mac and Fannie Mae, who either own or guarantee a large part of our $12 trillion mortgage market. This all sounds eerily reminiscent of the run-up to the mortgage meltdown of 2008, including a role of potentially captive or not fully responsible rating agencies. 25:45 Sen. Sheldon Whitehouse (D-RI): Florida is far from alone. A New York Times investigation found that the insurance industry lost money on homeowners coverage in 18 states last year, and the states may surprise you. The list includes Illinois, Michigan, Utah, Washington, and Iowa. Insurers in Iowa lost money each of the last four years. This is a signal that hurricanes and earthquakes, once the most prevalent perils, are being rivaled by hail, windstorms, and wildfires. 28:00 Sen. Sheldon Whitehouse (D-RI): This isn't all that complicated. Climate risk makes things uninsurable. No insurance makes things unmortgageable. No mortgages crashes the property markets. Crashed property markets trash the economy. It all begins with climate risk, and a major party pretending that climate risk isn't real imperils our federal budget and millions of Americans all across the country. 33:45 Sen. Chuck Grassley (R-IA): Insurance premiums are far too high across the board and may increase after the recent storms, including those very storms in my state of Iowa. Climate change isn't the primary driver of insurance rate hikes and collapse of the insurance industry isn't imminent. Although I'll have to say, Iowa had six property and casualty companies pull out of insuring Iowans. Climate change doesn't explain why auto insurance premiums in 2024 have increased by a whopping 20% year over year. It also doesn't account for the consistent failure of liberal cities to fight crime, which has raised insurance risk and even caused insurers to deny coverage. Expensive liberal policies, not climate change, are much to blame for these market dynamics. 39:00 Sen. Sheldon Whitehouse (D-RI): The first witness is Rade Musulin. Rade is an actuary with 45 years of experience in insurance, specializing in property pricing, natural perils, reinsurance, agriculture, catastrophe, risk modeling, public policy development, and climate risk. Specifically, he spent many years working in Florida, including as chair of the Florida Hurricane Catastrophe Fund Advisory Council during the time in which Citizens Property Insurance Corporation was established. 39:35 Sen. Sheldon Whitehouse (D-RI): Our second witness is Dr. Ishida Sen. Dr. Sen is an Assistant Professor at Harvard Business School. Her recent research examines the pricing of property insurance and the interactions between insurance and mortgage markets. This includes the role that institutions and the regulatory landscape play and the broader consequences for real estate markets, climate adaptation, and our overall financial stability. 40:00 Sen. Sheldon Whitehouse (D-RI): Our third witness is Deb Wood. Ms. Wood and her husband Dan McGrath are both retired Floridians. They moved to South Florida in 1979 and lived in Broward County, which includes Fort Lauderdale for 43 years until skyrocketing insurance premiums became too much. They now reside in Tallahassee, Florida. 40:35 Sen. Chuck Grassley (R-IA): Dr. EJ Antoni is a Research Fellow at the Heritage Foundation Grover M. Hermann Center for the Federal Budget. His research focuses on fiscal and monetary policy, and he previously was an economist at the Texas Public Policy Foundation. Antoni earned his Master's degree and Doctor's degree in Economics from Northern Illinois University. 41:10 Sen. Chuck Grassley (R-IA): Commissioner Glen Mulready has served as Oklahoma's 13th Insurance Commissioner and was first elected to this position in 2019. Commissioner Mulready started his insurance career as a broker in 1984, and also served in the Oklahoma State House of Representatives. 42:15 Rade Musulin: Okay. My name is Ray Muslin. I'm an actuary who has extensive experience in natural hazard risks and funding arrangements for the damage and loss they cause. I've worked with many public sector entities on policy responses to the challenges of affordability, availability of insurance, and community resilience. This work included participating in Florida's response to Hurricane Andrew, which included the creation of the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation. The Cat Fund and Citizens can access different forms of funding than traditional insurance companies. Instead of holding sufficient capital or reinsurance before an event to cover the cost of potential losses, both entities use public sources of capital to reduce upfront costs by partially funding losses post-event through bonding and assessments. All property casualty insurance policy holders, whether in Citizens or not, are subject to its assessments. While the Cat Fund can also assess almost all policies, including automobile, this approach exposes Floridians to debt and repayment if large losses occur, and it subsidizes high risk policies from the entire population. These pools, others like them in other states, and the NFIP have contributed to rapid development in high risk areas driving higher costs in the long run. In Florida, national insurers have reduced their exposure as a significant proportion of the insurance market has moved to Citizens or smaller insurers with limited capital that are heavily dependent on external reinsurance. To date, Florida's system has been successful in meeting its claims obligations, while improvements in building codes have reduced loss exposure. However, for a variety of reasons, including exposure to hurricanes, claims cost inflation, and litigation, Florida's insurance premiums are the highest in the nation, causing significant affordability stress for consumers. According to market research from Bankrate, the average premium for a $300,000 home in Florida is three times the national average, with some areas five times the national average. A major hurricane hitting a densely populated area like Miami could trigger large and long lasting post-event assessments or even exceed the system's funding capacity. Continued rapid exposure growth and more extreme hurricane losses amplified by climate change will cause increasing stress on the nation's insurance system, which may be felt through solvency issues, non-renewals, growth of government pools, and affordability pressure. 44:55 Rade Musulin: Evidence of increasing risk abounds, including Hurricane Otis in 2023, which rapidly intensified from a tropical storm to a cat. five hurricane and devastated Acapulco in Mexico last summer. Water temperatures off Florida exceeded a hundred degrees Fahrenheit last week. As was alluded to earlier, NOAA forecast an extremely active hurricane season for '24. We've seen losses in the Mid-Atlantic from Sandy, record flooding from Harvey, and extreme devastation from Maria, among others. In coming decades, we must prepare for the possibility of more extreme hurricanes and coastal flooding from Texas to New England. 46:50 Dr. Ishita Sen: Good morning Senators. I am Ishita Sen, Assistant Professor at Harvard Business Sc