Five Steps for States on the Home Insurance Crisis
As climate change drives an affordability crisis, states can take steps now to provide relief, reduce costs, and hold companies accountable.
By Carly Fabian
As insurance costs skyrocket, the financial costs of climate change are now a nationwide crisis. States can lead by addressing what the public needs most: affordable insurance, corporate accountability for claims of abuse, and immediate relief. To address climate change, the root cause, states should act now to shift industry profits towards resilience and mitigation, directing fees towards loss reduction and shifting insurance from an obstacle to an accelerator for the energy transition.
1. Provide an earlier warning system
The minimum, immediate step all states should take is to extend the time policyholders have to prepare when insurers pull back. Because insurance contracts only cover one year, insurance companies have tremendous power to non-renew policyholders annually, leaving people scrambling to make important decisions about new coverage or changes to their home. States can extend the required notice periods and require clear, specific reasons for non-renewals so homeowners know how to reduce their risks. To prepare in advance for disasters, states should also ensure that the commissioner has the authority to establish moratoriums on non-renewals for vulnerable areas post-disaster.
2. Penalize insurers for outrageous claims practices
The point of insurance is to be there when you need it most, yet too many insurers low-ball, deny, and delay claims. States should stand up to these abuses by establishing tighter timelines for payouts, increasing the amount and frequency of penalties, and requiring payment of interest on claims to disincentivize delays. States should also require insurers to provide immediate payout of contents coverage for total losses, removing the onerous burden of collecting and filing receipts for every item. States should also ensure policyholders have access to the courts to sue insurers who engage in bad faith, an essential form of recourse.
3. Provide public oversight of excessive costs
States should require companies to obtain prior approval for rate increases, justify their increases, and limit factors used to determine rates. Because insurance ratesetting is highly complex, states can provide an additional layer of public scrutiny by extending successful public intervention programs, a model that has worked well for utility ratesetting, to insurance rates and regulation. With prior approval over rates, states should also take action to limit the pass-through of unnecessary expenses like advertising and explore ways to redirect excess profits in low-loss years to resilience.
4. Raise insurance industry fees to fund resilience
Proactive investments in resilience can dramatically lower losses over time for policyholders, insurers and governments, with every $1 invested in resilience saving $13 later on. As insurers focus narrowly on profits from investing policyholder premiums rather than loss reduction, states should step up, using tools like surcharges, fees for insurance industry licensing, as well as agent and broker fees, for proactive resilience and mitigation. By directing funding to grant programs for fortified roofs, wildfire mitigation, and emissions reductions for the most vulnerable homes, states can reduce the risk, lower claims, and lower insurance premiums, saving everyone money. To ensure these resilience investments keep pace with climate change, states should pair resilience retrofits with efforts to reduce emissions, funding measures that advance both, such as new double-paned windows for energy efficiency and wildfire risk reduction, rooftop solar programs with roof retrofits, and utility-scale solar.
5. Align insurance with the energy transition
As states establish energy transition timelines, they should require insurers operating in their state to do the same. Insurers are not only some of the most influential investors in the world, but, through their underwriting, insurers act as financial gatekeepers, determining whether new coal mines are built or whether solar farms get the financing to get started. States can require all insurers licensed in the state to file plans to align their investment and underwriting with the state’s energy transition and document annual proof of progress.
As climate change drives up disaster losses, the public needs an insurance system that not only pays after a catastrophe but reduces risk before it strikes. State lawmakers must step in, holding insurers accountable and addressing the rising costs that put people at risk of losing their homes. If insurers cannot meet basic standards of transparency, resilience, and mitigation, states should pursue public alternatives that play a more active role in reducing losses.
These five actions are a starting point. For further guidance, check out Public Citizen’s state insurance policy guide and the Equitable and Just Insurance Initiative’s post-disaster policy guide.