A Call for Disaster Insurance Affordability & Reform

According to the National Association of Mutual Insurance Companies “The high costs of recent natural disasters combined with the fear of future catastrophes have restricted homeowners’ insurance, reduced availability, and raised affordability issues in disaster-prone regions.”

The truth is the decision to buy homeowners insurance coverage for catastrophic natural disasters is not always a conscious one made on the part of many homeowners. 

Most natural disasters, including hurricanes, earthquakes, floods, tornado’s, hailstorms, etc. are not covered by standard homeowner policies and many folks don’t even realize they’re not covered for such events, that is of course until disaster strikes and its too late!

Others, faced with sky-high premiums and policies with limited coverage, take the risk they won’t need insurance to rebuild, mainly out of financial necessity. Typically, the price for catastrophic insurance is shockingly high compared to the risk. For most homeowners, their location, financial situation and comfort level with risk has a lot to do with whether they can afford to do without it. 

Availability and affordability of property insurance in coastal regions, for example, is mainly a function of risk. However, other factors including actions taken by government, can also affect the cost of insurance. States in catastrophe prone  regions often impose price ceilings on insurers for coverage.

Government rate suppression is the preferred solution of many regulators and state legislators regarding the “property insurance affordability issue” in disaster prone regions. Rate suppression covers up an underlying problem – forcing insurance buyers in low-risk regions to pay inflated prices in order to subsidize the insurance costs of those in higher-risk regions.

Recently, the National Association of REALTORS®  stated before two House panels that a more comprehensive national natural disaster policy is needed. Charles McMillan, past president of NAR, told Congress that it must improve the affordability of property insurance for natural disasters.

The NAR believes that a comprehensive natural disaster policy should include property owners, insurance companies and each of the different levels of government in preparing and paying for future catastrophic events. 

McMillan outlined the following criteria for creating a federal policy:

• Acknowledge personal responsibility of those living in high-risk areas to purchase adequate insurance.
• Ensure transparent and comprehensive insurance is available and affordable at premiums reflecting risk.
• Provide owners incentives to undertake mitigation measures when appropriate.
• Acknowledge the importance of building codes and smart land-use decisions, stressing the importance of enforcement at the state and local levels.
• Reinforce the proper roles of all government levels for investing and maintaining critical infrastructure, like levees, dams and bridges.
• Recognize the role of states as appropriate regulators of property insurance and the role of the federal government in cases of mega-catastrophes.

McMillan went on to say that  “All reasonable proposals should be considered in creating a national policy to proactively address the inevitable, rather than waiting for the next crisis to occur and rely upon taxpayer-funded bailouts.”

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Article Sources:
National Association of REALTORS® 
National Association of Mutual Insurance Companies