The Reinsurance Association of America (RAA) has expressed reservations about the potential implementation of a federal natural catastrophe reinsurance program, as outlined in the recently introduced INSURE Act. The RAA contends that such a program, while well-intentioned, may inadvertently contribute to increased insurance costs for Americans, failing to address the root causes of rising premiums and availability issues.
In a statement to Insurance Business, RAA President Lee Covington emphasized that a federal (re)insurance program is unnecessary and could exacerbate existing challenges. According to Covington, the program might escalate risk and subsequent premiums by encouraging development in high-risk areas rather than focusing on effective solutions.
The INSURE Act, introduced by District of California Representative Adam Schiff, aims to establish a federal catastrophe reinsurance program to alleviate costs for consumers grappling with home insurance availability and affordability concerns. Despite garnering support from consumer advocate organizations such as Consumer Watchdog and United Policyholders, industry stakeholders, including reinsurers and reinsurance brokers associated with the RAA, caution against potential unintended consequences.
Covington stressed that addressing key issues such as inflation, concentrated property risk in high-risk areas, lawsuit abuse in certain states, and the increasing frequency and severity of natural catastrophes should be the priority for legislators. He argued that the federal government’s focus should be on promoting risk mitigation and directing funding toward resilience initiatives, citing the Community Disaster Resilience Zones (CDRZ) Act as an example.
While acknowledging the rising costs of insurance, Covington dismissed reinsurance as a significant problem, stating, “Any increases in reinsurance costs due to the driving cost factors have a de minimis impact on policyholder premiums.” He emphasized that reinsurance plays a vital role in spreading risk and costs globally, preventing an undue burden on American taxpayers.
The American Property Casualty Insurance Association (APCIA) has previously voiced opposition to the INSURE Act, cautioning that it could jeopardize families’ access to essential coverage.
The United States continues to grapple with challenges in property insurance affordability and availability, particularly in areas exposed to natural catastrophes. Major insurers, including State Farm and Farmers Insurance, have scaled back their operations in key states, exacerbating the issue.
According to a January Gallagher Re report, the US accounted for 66% of total global insured property losses in 2023, amounting to $123 billion. Severe convective storms alone contributed $60 billion to insured losses. Despite avoiding a major hurricane in 2023, the aftermath of Hurricane Ian in the previous year resulted in tens of billions of dollars in insured losses in Florida and nearby states.
RAA analysis of National Association of Insurance Commissioner (NAIC) data via S&P Global Capital IQ Pro revealed that US insurers booked nearly $140 billion in reinsurance recoverables in 2022, representing a quarter (25%) of the $558 billion in direct insured US losses that year.
The Global Property Catastrophe Rate on Line (ROL) Index by Guy Carpenter identified a 5.25% rise in the US during the January 1, 2024, reinsurance renewal period, compared to a 7.6% increase in Europe. The ongoing challenges in the US property insurance market underscore the need for a comprehensive and effective approach to address the underlying issues contributing to the affordability and availability crisis.
