Transcripts For CSPAN3 Policy 20240702

A look now at challenges in the property Insurance Market. Witnesses discuss marketplaces and insurance providers leaving california, texas and other states. This hearing held by the Senate Banking financing in urban affairs committee. The committee a banking, housing and urban affairs come to order. Looking back witnesses who have been here before and welcome colleagues and staff. First hearing obviously posed labor day. A few Financial Decisions more important than buying a home, homebuyers making an investment in themselves, their families, their communities. It is an act of optimism and also stressful. Families have so much to think about, making sure they are covering the down payment, navigating the mortgage and closing process, catching up with the new school if they have children. Buying Homeowners Insurance has always been a part of that process giving families peace of mind. Homeowners are confident their premiums are a backstop against devastation that could ensue if the largest investment is threatened by an increasing number of Natural Disasters, tornadoes, hurricanes, wildfires. Knowing they are covered can help homeowners sleep better at night. Or that is how it is supposed to work. Increasingly, homeowners have faced and unpleasant supplies when it is time to reroute renew their policy. Or shock to find the insurers has raised costs, has limited coverage or wont renew their policy. Insurers have abandoned in some cases entire markets leaving consumers with fewer option that cost more and provide less coverage. Consumers are counting on their insurers now more than ever. According to know what, since the beginning of the year, the country has experienced 15 weather disasters each resulting in losses of 1 billion. Swiss insurance provided that severe storms resulted in 34 billion of insured losses in the first half of this year, alone. The highest ever in a sixmonth period and there is no reason to think those numbers will not keep going. Last months horrific Deadly Wildfires in hour 50th state tragically killed at least 150 people with hundreds more missing and a projected loss of more than 6 billion. Senators welch and sanderson and senator scott ahead of this hearing detailing the loss have suffered from devastating floods this summer. Higher insurance rates could hit the homeowners, landlords and renters who can least afford them hit them the hardest. The lowest income residents we know that and disaster after disaster, the lowest income residents of communities of color that have been pushed into the areas most vulnerable as weather patterns continue to change because of Climate Change. And have not previously been prone to natural catastrophes. This is letting Insurance Companies to reevaluate risk levels and not just on the coast. As a head of the association for property insurers, how there is no place to hide from the severe Natural Disasters. The results have been disturbing trend. Companies are raising rates and in some cases, they leave states or geographic areas out entirely. As secretary yellen recently noted, the threat result is a protection gap increasing costs, limiting options for families increasing Financial Stability across the financial system. Insurance rates, the cost of insurance rates, by obviously spreading out risks, reportedly increasing up to 50 . These reInsurance Premiums have been driven in part by frequent and more severe Natural Disasters for themselves and their investors. Higher insurance rates mean higher costs which mean price hikes down past down to consumers every month. Others scramble to find any insurance at all because the insurance has refused to renew the policy. California most recently, two major insurers stopped writing Home Insurance policies in the whole state. Both side of the growing risk of catastrophe and spiking reinsurance rates as factored in the decision. Not to be outdone in florida since 2016, severe storms and hurricanes have caused more than 100 billion worth of damage. Farmers insurance became the fourth in florida alone to exit the market. Lexington insurance would announce in july it would stop writing policies in that state. Days later, aaa announced it would not renew some of the high exposure policies of the state despite the fact that the average Homeowners Insurance premium in florida cost 6000, the highest in the country. 14 Insurance Companies enter the receivership process, insurers exiting state markets have left homeowners and businesses with no choice but to seek coverage from state mandated which provides bare bones policies and typically higher rates. Last resort are obviously just that, the last resort. That means these insurers have policies but it is especially coastal states but everywhere has been battered. Florida, for example, the states single largest property insured 1. 4 million policies. California fair plan has been to see more than 100 increase in policies over the last five years reportedly offering 300,000 policies at the end of last year. Not only homeowners by rising costs but shrinking coverage. The multi Family Housing Council Reports multiple issues for higher rates and deductibles coverage limitations, no viable private market insurance option at all. Because each insurance policy is a contract between the Property Owner and the insurer, it is harder to know when to stop writing coverage for a community or state but owners tell us they are seeing a trend. Owners are already too small supplying affordable apartments serving the lowest income renters increasingly left with the possible choices. Todays witnesses understand unique challenges facing homeowners and property managers. The capitol of my home state of ohio is seeing the problem of rising insurance costs first hand across many states. I am pleased to have all of you here today is for these perfect these topics. I think you offer joining us today. And the Important Role that insurance plays and the ability to transfer the risk to an Insurance Company. As you would imagine, coming from South Carolina, thinking about my friends in florida and georgia and North Carolina, thinking about the devastation of the fires in maui, my prayers and thoughts are certainly with those folks who have lost family members and have seen their lives devastated, their properties destroyed. So much attention is given to the challenges of the environment climates, too often what we see rather is in maui or other states, the manmade disaster that jeopardizes the states. I think about the fact that in my lifetime as an adult, i spent 20 years in the Insurance Business. And so i do have an affinity for terms i used when i was in business. Mike also was an Insurance Agent and an agency owner, as well. One of the things we both talk about is the pml, the probable maximum loss. Can an Insurance Company calculate accurately or even in the range of reality what is a probable maximum loss within a market whether the market is the charleston area where we are prone to hurricanes or whether it is the state of california or ohio with storms and other Natural Disasters . Can a company predict the loss that will be incurred and can they absorb that loss based on the premiums per policy and when you cannot and do not stay on the market, it is kind of that simple. Insurance companies have to follow the basic rules of economics like any other business and that is one of the challenges. Particularly, states like california and florida. Californias overregulated market exit very difficult for Insurance Companies to make a profit. One of the reasons why you see whether it is state farm, aig or the Insurance Companies that we just named leaving markets is because the rates efficiency is impossible to get there and the inability to find a path forward whether it is the enough ip that provides some reduction of that risk or to get our arms around the catastrophic occurrences from coast to coast. Whether it is a hurricane, a flood or tornadoes, we have not really wrestled with the actual damages done by catastrophic occurrences. If you are on the coast or in the south, whether it is louisiana, florida were, we account for half of all of the premiums. What happens in new york or new jersey or ohio, the policyholders never heard of or thought of the Flood Insurance policy so they are drawing money out of the account without putting resources in so we have some real challenges that we should identify, understand and appreciate that every Insurance Company is wrestling with today. You think about california, two questions come to mind. One, you have a birth is a marketplace that is oppressive and drives business out. It is just not the Insurance Companies but every other business that you find another place to go seems to be looking for a different market. I understand that part of the challenge we see in florida is the Regulatory Environment is challenging. The Natural Disasters are challenging but with only 9 of the policies, homeowner policies of the country, they represent about 79 of Homeowner Insurance lawsuit. Over the last decade, companies in florida have paid out 51 billion. However, 71 of that goes to attorneys fees. Something is broken in the market where it is not the homeowner. It is the lawyers because of the challenges in a broken state as it relates to the environment that is apparent , obvious and clear in florida. Whether it is california or florida, we need to understand realistically the challenges these Insurance Companies face and why they are continuing to pull out of the market. I am hearing solution, opportunities to recalibrate markets. And for us to have a panoramic view of how to keep Insurance Companies viable. Without any question, homeowners today are desperately looking for opportunities to for the coverage. They think the average as suggested earlier, the average premium for a house, 1700. For the same policy in florida, it is 6000. That is the case. It is not simply a case of rates efficiency based on probable maximum loss of a Natural Disaster, it has to do with the 51 billion attorneys that have to be factored in to that new definition of race efficiency that is going to be really hard to meet if that environment doesnt change. I will introduce todays witnesses. The federal Advisory Committee and a member of the california automobile, and executive committee. Noris is the executive Vice President of Strategic Partnerships and nations largest provider of senior housing. She serves as chairman of the board of directors for the future. For supportive housing, the sustainable Affordable Housing Management Association, welcome. A director of the finance insurance and trade policy program pr street institute. Prior, he served as director of research inclining and multiple rows. Please begin. Good morning mr. Chairman, senators, i am doug schiller, director of insurance for consumer america. Arrived in many parts of the country and is brewing in others. I will highlight what consumers are dealing with. Some thoughts about her government ensures that Property Owners can Work Together to reduce costs, improve coverage and build safer homes in more resilient communities. In 2022, americans spent about 125 billion in Home Insurance. We hear from many around the country paying upwards of five dollars per month just for the basic Home Insurance. Add more if they need to and if they need to buy a separate policy. Not surprisingly, regions is being hit hard in this market but this is a national problem. In fact, some of the highest insurance prices paid by the residents in the midwest facing hail risk but the pain is not distributed. The most honorable are often home to Community Color and low income americans amplifying the crisis for them and it is not just geography targeting these communities. Insurers penalize homeowners if they dont have a great credit score even if they have never filed a claim. This disproportionately harms low income folks, people of color and rural americans added more pressure to the premiums already boiling over. The second part of the crisis is the Insurance Companies deciding to walk away from ulcer amenities and states entirely. Since everyone with a mortgage is required to maintain coverage and because people want protection, this is an incredibly scary situation. What makes people so angry is that the insurers for years who of course have presumed expert risk have told them that their neighborhood is fine and insurable and they have always collected the premium so for companies to take their chips off the table without warning and walk away is unacceptable. Especially after risk analysis for years. A highpriced policy offered with barebones coverage or when people cannot make their payments, they end up being forced placed into a company by their Mortgage Company. People simply cannot afford to own a home because they cannot get insurance. The third problem is the following out of the coverage that people can afford. Rather than working in partnership with the communities to reduce the risk of loss due to climate disasters, Insurance Companies are selling policies with less rebuilding benefit, more exclusions and higher deduct devils. Companies are reducing their own risk but that just transfers back to homeowners, renters, farmers and other consumers so why is this happening . There are two key drivers. First, the reality of worsening disasters is undeniable. Tackling this requires a collaborative effort to reduce the risk that stems from Climate Change by investing in safer homes, more resilient communities. This involves better data collection, expanded support and more grants for individual homeowners to harden their homes. And when Property Owners invest in loss mitigation, they should be promised access to coverage and relief on their premiums. This discussion must include issues of property development, Affordable Housing and equity. If we dont take on those larger questions, Insurance Companies will be the ones left in charge through their ratemaking and underrating decisions. The second key driver for the crisis is the exploding crisis in the unregulated global market. The proper Insurance Companies use to hedge their bets. Up 35 since january, alone. So we need a meaningful Public Private ownership to address this massive market failure. Provide a backstop just as we did with terrorism. In exchange for insurers offering a meaningful product without gaping holes and one that covers all major perils. Insurers climate risk this way, the federal program would supply probable maximum loss. To conclude, by prioritizing their own exposure to Climate Change rather than reducing the actual risk of loss. Effectively addressing these problems demands a holistic approach. It requires a focus on strategies that will reduce the damage by Climate Change, strengthen communities and use Innovative Private partnerships to create a sustainable market that will gild affordable coverage to americans as we confront Climate Change together. If we have opportunities, i would love to talk about senator scotts concerns about what is happening in florida and i will think the committee for having me here and conclude. Mr. Chairman, Ranking Members, i would like to thank you for this opportunity to speak about the challenges and the property Insurance Market and how this is impacting the multifamily sector especially Affordable Housing. For over 60 years, National Church residence has provided housing care to older adults. We currently provide rental homes for more than 20,000 low income seniors and 23 states. My remarks largely today reflect those of a growing coalition of multiFamily Housing stakeholders concerned by the trends Insurance Industry and the impact they have on affordable rental housing. I am proud to be associated with several of those organizations as currently mentioned including Affordable Housing for the future we are currently serving as board chair. National Management Association where i chair the Regulatory Committee and the national Family Housing council where we are a member. These groups along with many other housing trading associations recently created a task force focused on finding solutions to the current Solution Market challenges so the Housing Providers can meet longterm Housing Needs for our residents. It is with this lens that i would like to share what we know about the property insurance trends and the negative impact it is having on the housing supply and affordability. Property insurance rates in the u. S. Have increased for 22 consecutive quarters. And in just the past three years, Housing Providers have reported annual premium increases ranging from 30 to 100 . For affordable rental housing. In fact, National Church residence is, we have seen our property and casualty costs go 400 increase in six years. We are seeing reduced coverage, minimal deductibles increased from 10,000 to 25,000 and up to 100,000 which is the option we had to take this year. In addition to the risk increases presents, these high deductibles can conflict with financial requirements. To avoid defaulting on financing, Housing Providers have to take additional policies, create layered coverages all of which add cost. Even developers and owners with very large portfolios have little Bargaining Power in todays industry. The pressures created by these increases impact our residence. Increase in insurance costs result in increased rents, market rate housing and Affordable Housing communities. Continued rising costs may also lead to the reduction in services to our residence, deferred repairs and threats to longest sustained dose sustainability. Higher costs. Rising insurance costs mean lower Net Operating Income to support debt or equity concerns. If you cannot borrow as much or attract less investment, it becomes even more difficult to finance the construction and preservation of the current Affordable Housing community. We are seeing the volatility of the Insurance Market being driven by three key issues. The unprecedented infrequency of national disasters. The impact of inflation on replacement value methodology. And finally, on the Insurance Market capacity and policy limitations. Many insurers have simply seized to underwrite multifamily casualties nationwide or in certain markets prone to Natural Disasters like the gulf coast states of florida and louisiana. I have detailed more information by written testimony but my message is this we must act now. Our country has a shortage now of 7. 3 million Homes Affordable to low income people. We cannot afford to jeopardize existing rental housing or slow the creation of new ones. Both shortterm and longterm policy solutions are needed. In the shortterm, hud and other federal agencies can provide funding for affordable homes. They must rethink existing insurance requirements and provide increased flexibility and funding to Property Owners to account for the realworld challenges we are facing. In the long term, investments and Climate Resilience at a greater level of intervention by the federal government in the Insurance Markets are necessary given the current market failures. Thank you for the opportunity to speak, today. And for your efforts to explore and address these significant challenges, we stand ready to work with you to further these efforts. Thank you. Chapman brown, scott, members of the committee, thank you for holding todays hearing and for the invitation to testify. Todays hearing is timely. Consumers and states with ailing markets struggle to secure Homeowners Insurance within budget. Availability and affordability concerns are particularly acute in california and florida. Symptoms of the element include insurers insolvencies, insurers ceasing to do business or pausing to do business, rising premiums, large Natural Disasters. First and foremost, it is a miracle that no lives were lost. Let us be grateful for that. California and floridas Insurance Markets are all not gloom and doom. Before we get to the good news, that state the temperature of the broader market. Some maintain that the capitol has been depleted. That is not so. In 2022, the primary Insurance Industry had a slight underwriting loss for every one dollar in premium, it paid out one dollar, two cents and seven mills. Investment income offset the underwriting loss contributing to a positive 4 return. According to thomas oh, competition does a much more effective job than government protecting consumers. The Insurance Industry is highly competitive. Chapman brown, Ranking Member scott, ohio and South Carolina are among the most competitive states for insurance especially South Carolina, number 4 so someone is doing something right. I agree. State can see jewel residual markets mandated insurers of last resort when insurance is under available in the standard market. The large residual markets are unhealthy symptoms. Insurance markets and loss exposures vary across states. Maine is the least catastrophe prone where california is exposed to earthquake, wildfire, atmospheric rivers. Even typhoons. One would expect premiums in california to be higher in less catastrophe prone states but they are not. Homeowners insurance and premiums in south dakota are equivalent to california even though californias risk and building and repair costs are higher. Californias Insurance Market troubles go back to proposition 103 in 1988. Proposition 103 made california the only state to introduce public interveners who can challenge rate increases above 7 . This requires the regulator to address and ensure rates within 60 days but the reality is that the 60 day rule must be waived before action is taken by the regulator resulting in delays of a year or more. This straight jacketing prevents insurers from charging rates. The result is close to 20 insurers pausing the Business World not renewing policies. Proposition 103 as a form of price control. The academic literature finds that price control does not work in california demonstrates this california regulator handicaps insurers by prohibiting insurers from factoring reinsurance costs and recent climate patterns into risk modeling. This is like preventing a doughnut maker to change the price of its donuts irrespective of flour and sugar costs. In contrast, the californias cost controls controls driven primarily by litigation as we have just heard. For years, florida had the dubious distinction of being 79 of homeowner litigation in the country despite having only 9 of the policies so what is the good news . In the spring, the California Assembly and senate held productive bipartisan information hearings on climate models and in florida, comprehensive reform was signed into law. Whats more, several new companies with fresh capitol have announced entering florida, one just yesterday. Going forward, californias most auspicious tailwinds have changed should continue and florida should maintain its resolve and put its history of Lawsuit Abuse in the rearview mirror. On that happy note, thank you for holding todays hearing, take you for your consideration of my views. I look forward to your questions. It is always good to ended on a happy note. Mr. Heller, you cannot open a newspaper without seeing stories of homeowners facing skyrocketing insurance rates with less coverage. Not able to find insurance despite what some say, it is not happening, of course. As short as you can, why are so many people across the country suddenly being priced out of the Homeowners Insurance market . The first reason, we have to acknowledge it, Climate Change is severely exacerbating the cost of Risk Transfer. It is increasing the risk of disasters. 15 1 billion events this year alone. Swiss actually reported that the most severe incidents were in texas. We talk about california, this is happening around the country. Climate change is a National Concern and it is affecting Insurance Markets everywhere. The reInsurance Market is number 2, it is the driver. These drastically increase premiums putting the right online produced by marsh mclennans subsidiary at the highest in the history of the index which has been calculated since 1990 so that Risk Transfer is also too expensive. There has been an adequate oversight of state Insurance Markets around the country and some terrible rules that require some of the big state insurers to actually charge customers more than the indicated rate. That makes no sense of why we are making last rate insurers pay more. And finally, there is the more specific rate for low income americans who because they dont have great credit find themselves paying 80 spikes. It is a conflict of these incredibly difficult issues. I hope we can get an agreement or at least an and knowledge meant about the existence of Climate Change in the severity of huge costs to all of us. We have heard arguments of Consumer Protections at the state level to stop writing Homeowners Insurance policies in certain states but the insurance multi family Property Owners by usually doesnt have the kinds of protections as you know and the oversight that the Homeowners Insurance policy would, how is the coverage including different from the coverage . And are you seeing fewer insurers offering multifamily coverage across the country . Thank you. Yes, we are seeing. First, i would like to highlight what was already mentioned about the impact of Climate Change and to your point. As an example, Church Residences are three highest claims we have had in our history and have happened over the last two years. One was from Hurricane Ida in august of 2021. 6. 5 million for our organization. Hurricane ian which hit a single property in florida and required us to vacate the property for six months and rebuild it at 13 million and a winter storm elliott which hit 44 of our communities. It is a really challenging time to be providing Affordable Housing. Is all we see in the Insurance Market, our insurance is covered at a National Level so we work with carriers that go across state lines but we are in fact seeing fewer and fewer options available for us. In fact, in our previous renewal, we have four carriers that worked with us on property and casualty. Three of those walked away and left us with a single carrier and basically, a take it or leave it on the premiums. Thank you. I wanted to thank you for raising concerns around nonprofits having difficulty finding affordable property Insurance Coverage. I appreciate that. Raising similar concerns including last years insurance. Mr. Heller, you noted that raising insurance rates coverage dont reduce risks. It reduces risks for the insurer and is shifted onto the homeowner. What can we do to reduce risks so that we can make properties safer . Thank you, mr. Chairman. There are really several things. We are doing a lot of his work with the building resilient infrastructure. There is new data that was released about where we need to invest most aggressively to provide the most return on those Infrastructure Investments around 500 different census tracts so we need to take the front end of the solution as serious as we have historically taken fema emergency funds after a disaster. That is what we really need to be doing, putting our money up front. One thing we can do very simply, senator feinstein and rome often have bills that would take grants to homeowners taxfree for home hardening. That is something we can easily do. I know the Earthquake Authority wants to be giving money out to people to strengthen their homes but people will bear the tax burden of that so that money is not free. So we need to make those investments upfront. If we protect with a dollar, we dont have to rebuild after the fact. My time is expired. I want to offer this committees help unknowing it can be difficult for a nonprofit operator to access resources for mitigation and ways we were working together. You said something earlier and i want to make sure i understood. If a Company Brings in a dollar in premium but pays out 1. 02 and losses, that is probably a bad thing . That is right. That is right. So the only way you can make that up is the roi on your investment between the time you pay and you pay out, you have the opportunity to invest effectively in a good market, then you would have enough to stay afloat. Like todays market, we have a 17 inflationary impact. It makes it more difficult to get that kind of roi. Thats right. Especially following the long period of Interest Rates when Investment Income was lower so the contribution from Investment Income was depressed and did not contribute enough to bring the combined ratio below 100 . Correct. Number 2, competitive losses and we just heard about rebuilding, rebuilding, rebuilding the national Flood Insurance program. 1 are repetitive losses and they count for about 30 of the payouts, the national Flood Insurance program. So if you keep building in the same area whether there is disaster after disaster after disaster, the chances are pretty good you are going to pay more out. Thats right, there need to be incentives for better behavior for the national Flood Insurance program. Now, they are trying to distance the device these repetitive and severely Repetitive Loss Properties by having a 25 increase if you have these repeated events. So send the right signals and people will respond by hardening, by taking preventative measures and pipe resiliency. Perhaps sometimes the federal government isnt really the answer on what communities need to do in making decisions about whether to rebuild. You have had multiple losses to the same property based on the same basic set of circumstances that come through a community. Thats right. The federal government hasnt had a good history of involvement in insurance. You mentioned the national Flood Insurance program which has tens of billions in red ink , the crop Insurance Program has subsidies that dont encourage farming of the right crops in the right areas. The Insurance Industry as you know is tremendously complex, simply principled but in the execution, there is an administration of policy issuance, distribution and a dozen other functions and the federal government has no business trying to create Insurance Companies. It is simply not feasible. Perhaps one reason why we should thank the good lord for the mccarron and ferguson act of 1945 that made our insurance a statebased system of insurance. This structure has produced highly competitive bear markets all across this country and frankly, it sets a global standard. Thats right and efforts from the past that have followed the Insurance Market to create a federal backstop or to provide subsidized insurance have not been successful. They have not taken off because it is simply not feasible. In 2007 after hurricane katrina, wilma, chris dodd held a similar hearing and chairman of the economic cea at lazear talked about the ways in which that would not be feasible. Congress in moscow its, charlie crist, could the governor of florida. There was a Kevin Mahoney bill. A number of bills have been introduced. The Insurance Industries strains, lets end the federal government into fix it. Doesnt have a history of working then and it wont have one now. It sounds like to me that you have already answered my first question which is the fact that federal taxpayers subsidizing state insurance challenges is not a recipe for longterm success. Thats right, subsidies and cross subsidies where the poorest subsidize the rich are both bad. Simple sounds like to me. Could you speak to why the Insurance Markets operate at a lag behind the rest of the economy and why we are seeing increased prices, now . One of the things im trying to narrow in on is the fact that we have seen an inflationary impact, that new market where you have 5. 2 or higher Interest Rates embedded into insurance rates, the companys model. That costs something. Thats right and it does take a couple of years. Building material costs rose by 19 . Copper prices, other prices of lumber and metal that is needed in rebuilding homes have gone up but it takes time because the loss may happen toward the end of the policy period and for the repairs, more expensive than before so it takes one or two years for those inflationary impacts are fed in. So there are three main drivers. Economic inflation, reinsurance costs and natural catastrophes. I am glad you brought up the inflationary. Thank you, sir. Senator reid of rhode island is recognized. If congress does not act by september 30th, the national Flood Insurance program does not exist. Can you tell us what the consequences of that will be . Please. Thank you, senator. Americans right now are facing these unprecedented catastrophes. We just saw pennsylvania, new york, vermont hit by severe flooding and we need to have Flood Insurance in the private market has not been there to provide insurance for homeowners and it has been stripped out of the Homeowners Policies and so we need a backstop so there is Flood Insurance. I will say only 12 of americans actually buy Flood Insurance. We are desperately under insured and i think it is important to note that senator scott is right, the Flood Insurance program has not been a success. We need it there because if we dont have it, weve got nothing but one of the reasons the federal reinsurance would be so valuable like we did with tria when we had this desperate exposure, by bringing in federal insurance, we could actually push the Flood Insurance policy does product back into the private markets which is exactly what i think senator scott was calling for because then the private insurers would be protected when they sell Flood Insurance knowing that the worstcase scenario was taken off the hook but until we do that, until we push Flood Insurance out of the federal Government Back into the homeowners policy, we need to have a Flood Insurance program for the federal government. There is often another approach which would be mitigation. In my state, we are working with the Natural Resources Conservation Service which is under the United States department of agriculture and we are actually buying homes in areas that are flood prone, ensuring floodplains so that is a natural dissipation of floodwaters. Working with the corps of engineers, my conclusion is we probably should do a lot more reactive work with respect to resilience. Senator reid, that is hour first, second and third thing that we should be doing, reducing the risk and we have got the knowledge and the data and whether it is flood you are talking about or with windstorms, we know how important roofing is. This stuff can be done but we have to make the commitment to it rather than just shifting the decks on the titanic by saying Insurance Companies are not going to take that risk. Higher deductibles, Property Owners, they take the risk. There is a discussion of the financial Insurance Companies in rhode island, our assembly passed a law that requires notification by Insurance Companies prior to their departure and that gives the state the opportunity to work with the company to see if there are ways to diversify or to do other things. Is that an approach that is worth emulating elsewhere . I think that is exactly right and what you are doing makes sense. We hear from homeowners. Why am i suddenly being told i cannot be insured. The point is, we need a transition process and Insurance Companies cannot take our money for decades and decades and now that there is a Climate Change, they are out of here. Senator brown from south dakota is recognized. Thank you to all of you for coming before us, today. Mr. Theodore, i am curious, how long have you studied or participated in the Insurance Market reviews . I have been an analyst of the propertycasualty Insurance Agency dose industry for years. 12 years and for the last three years, leading the Insurance Research at r street. Prior to that, i was in industry and i worked in the industry as an underwriter and other capacities. Just curious, i was first licensed in the insurance, i was first licensed to sell insurance as an agent in south dakota in 1978 for Homeowners Insurance and carried that license all the way up until 2015 when i was elected to the United States senate. I am just curious, during that time period, you learn what is in a policy and what is not in a policy and under homeowners policy, there was an oldto form and it was transferred to nato three form where it had named parallels and you had risk coverage with exceptions built in. I was trying to think back, i dont think i have ever seen a homeowners policy which is available as Flood Insurance as part of the original perils. Are you aware of Flood Insurance or a homeowners policy that started out in basic forms with Flood Insurance. Now, but has been excluded for several decades prior to the 1970s. The three which was the most common form , special form is excluding flooding Insurance Programming, national Flood Insurance program and the principal provider of Flood Insurance. The good news is that the private market is growing and that brings good news. Now there is 77 companies that are writing 31 for the Insurance Business compared to 12. 6 just a few years ago. The private market is starting to come in especially since the new rating methodology has been introduced. Right now, we have an fip which is backstop for Flood Insurance across our country and i think it is very important that we get it renewed. I think it is an important aspect for a lot of areas where the risk is high but the vast majority of the americans simply look at the policy and say, i dont need Flood Insurance because i am not in a flood prone area so they do not buy it or they do not require them to buy it so what you end up with in many cases, the folks who would buy it are the folks who think they may have a loss being required because the federal government thinks they may be in a flood zone. Correct . Thats right. That leads to two problems. One is adverse selection which means the policies that are written are the ones perceived with the highest risk next to a river or a creek or on the coast and you have low penetration. There are 78 million homes in the United States and only 5 million carry Flood Insurance and 70 are exposed to flood. We have seen these atmospheric rivers, these rainstorms that are horrific and violent that are removed from bodies of water. The flood exposure is there, the market is underpenetrated and there is adverse selection. We represented dozens of Insurance Companies and the agencies that i have had an ownership interest in south dakota. I found that they either wanted to be in the market, they wanted to be writing a lot of Insurance Coverages, they wanted to write lots because they made a profit if they had a larger part of the market itself. The vast majority of insurance carriers would love to write for a particular lineup coverage if they thought they could make a profit. Fair enough . That is absolutely right. So the exodus in california as the Ranking Member scott said, a longer law of economics. If you are losing money, there is no reason to go on doing it. If we recognize there are certain areas around the country where the carrier has said, we cannot make a profit, we are on our way out, mitigating circumstances, being able to appropriately increase rates for the sum of the Severe Weather events. If they are not able to increase rates based on that, basically look at it and say we are a forprofit organization and we cannot make a profit but there seems to be a movement out there still where people think we should spread that out to taxpayers to pick up those losses and keep the rates low. Is that a Fair Assessment of what some folks think is a better alternative . That would socialize the risk and penalize those who have a higher risk to go on having a higher risk. What happens when the private market makes an amount for insurance that is almost feasible to be able for the homeowner to afford . They choose not to have property flooding insurance and the consequences of that when we have the storms or the wildfires or the flooding that ends of the federal government comes in and help the state. Isnt it better to have a system that is somewhat . The affordability issue can be dealt with means testing if there is affordability and the home cannot be moved or they cannot harden the home, there can be some form of means testing. With the new rating technology, 20 of policies have seen a decrease in a premium that they have. An enormous number of people have left the national Flood Insurance program. Let me just ask this, decades of inaction on Climate Change is asking those causing the market to buckle under computing depressions to provide returns for shareholders and sell policyholders can actually afford as businesses and insurers have an obligation to their shareholders to make a profit but as policymakers, we have an obligation to correct for market failures when there is a compelling Public Policy reason to do so and here it is to ensure families can afford necessary coverage and prevent collapses in our local housing markets. Because between wildfire droughts and flooding, the reality is that there is nowhere left in the country that isnt being challenged by a Natural Disaster. In my state, you have Senior Communities in great and south river and elizabeth just to mention some that are historically challenged with flooding. What would it mean and by the way, those communities are not wealthy by any stretch of the imagination. What would it mean if homeowners in terms of Flood Insurance becomes unavailable and Flood Insurance comes prohibitively expensive . I assume youre talking about in our multifamily communities, our Affordable Housing communities that we have in your state . Correct . So in new jersey along with all of our other communities and other states where we do our we provide Affordable Housing, the idea of us as the owner being able to not be insured puts a tremendous risk not only on us but on our residents, as well. At some point, if we were not able to get insurance, it would leave our building and our residents completely exposed. We have as i mentioned earlier, we have had our highest three claims. It happened in the last two years. If we did not have insurance, those apartments have been completely unable to be reoccupied. As a matter fact, at one of the communities, they were out for six months while we rebuilt. Without insurance, we would not have rebuilt and they would have been left to find their own homes. The Senior Communities are part of what i am talking about. One of the reasons i introduce this bipartisan act. Providing generational investments and mitigation and risk factor to tackle longterm challenges of flooding. Nearly 11 years ago, we in new jersey face the worst Natural Disaster in our states history. Destroyed homes, shattered businesses, flooded entire communities but in the months and years following Hurricane Sandy in new jersey facing a manmade disaster and getting on his claims for their policy, people who have paid a lifetime and made a claim and finally, making a claim through the manipulation of reports and utilizing obscure loopholes and Insurance Companies acting as contractors for fema systematically lowballed policyholders. To establish the sandy claims review which resulted in 260 million more dollars paid out. But it seems to me that an old dog doesnt seem to learn new tricks. Mr. Heller, what are you seeing in florida for the Homeowners Insurance policy in the aftermath . It has been terrible for so many homeowners. We have seen the evidence of Insurance Companies that were literally changing their own adjusters claims values. This is just a straight rod from Insurance Companies and we need to prosecute those fraudsters but how . How regulators are coming in, in real time and taking the data leaving homeowners exposed after they paid their premiums for years and when they need the companys most, the companies turn their backs on them. Legislation stops the bad actors from taking place. What took place will happen in the nation. Mr. Heller, does the and fip have a regulator that they will submit changes to . The and fip goes through its process but what we have seen is a sort of 2. 0 with massive rate increases. We need to be making sure that the rights that come out of ny fip, we have not seen an appropriate, we have seen real problems. We have lost 150,000 policyholders and by their own admission, fema says we will lose 1 million policyholders by the end of the decade due to premium increases. That is not a way to solidify Insurance Program. Thank you. Senator tilson of North Carolina is recognized. A unanimous consent to submit one piece and one article related to some of the root causes of the california and florida problems. One of those was coauthored by mr. Theodore. Mr. Theodore, i want to go back to a very important number that was touched on. For every dollar, you paid out 1. 02, is that correct . For the premiums that the judge were necessary to cover the risk, they were two cents on the dollar, right . And unfortunately, they have a hedging strategy where they have been vestments and hopefully have returned to make up those losses. Would it be fair for anybody to say that insurers paying out more than taking in premiums are making money hand over fist are greedy . Based on the data . The data says they are not. 2022, there was a 4 margin because Investment Income kicked in about 600 basis points and longterm insurance agencies go to return of 6. 5 . Companies that are publicly traded have about 14 to 15 so the Insurance Agency has a much smaller margin than other insurance agencies. Are part of what we can be doing is considering National Policy that is trying to address some of the shortcomings and then my opinion , past policies, prop 103, they are addressing some of the problems in florida through tour reform. I am glad they got on board. We did that 10 years ago in North Carolina but there seems to be a suggestion that we just dont have enough regulations in place at the state or federal level to fix this problem. Do you think there are glaring gaps in addition to regulatory measures that we should take to fix this problem . No, i dont. I think the push to establish some sort of or introduce some sort of backstop or support however wellintentioned would backfire because contrary to popular opinion, the Insurance Market and primary Insurance Industry is not on its knees, it is not collapsing, it is in the business of dealing with catastrophes. There are inflation and Interest Rate factors beyond control and the mutual Insurance Industry, there are companies doing business for 200 years. You cannot be greedy for 200 years and not lose all of your business. They have been through storms before. Do you think there are Corporate Board rooms that have a strategy as a part of the Growth Strategy . Only in states where they cannot make a dollar. Why on earth would a major insurer exit california and florida are . Because they cannot make the numbers work. I think part of what we have to examine is examine the policy decisions made at the state level that are creating structural problems and causing markets. I dont know how we actually get an address. You listed off three key areas that need to be addressed. We need to address all of them. I just dont think we accomplished that through some sort of centralized burdensome regulatory construct coming out of washington. I think there is a way to fix this problem and i dont think it is with a big federal government solution, i think it is working through the roof causes. You can draw a line between policy decisions made and why you exit the market. I do like what you said about affordability. I think that we should find people seeking insurance that prefer not to be on the property anymore. We failed with fema, we felt with resiliency measures. Ive got Property Owners, we have had 53 property cyclones impact over the last three years. Landfall over the last four years. I have been dealing with this for 16 years i left office but elected office but i dont believe the mindset that some of my colleagues have is that it can be fixed in washington. It needs to be fixed by a state bystate basis. We have to address these problems but it is not going to come from compelling the private sector business to survey market that cannot be sustained with all of the constraints they have. Creditsd increase a premium by as much as 80 . Heller yes, we have seen premiums actually jump for people with no personal Credit History by as much as 100 . Sometimes doubling their premium yes, sir. We see premiums jump for people with no credit but no claims history as much as 100 , sometimes the doubling of their premium. Yo could you explain to me how you believe that part of the process should include a credit risk rating . The insurance adjuster credit score has been found to be correlated with losses. Of the industry, i think from what i know and what my experience is as an underwriter does not overprice policies because of credit scores. If it is credit forces will come in. Right, if it wasnt it wouldnt be a factor in the actuarial process . Yes. Thank you for your testimony. Thank you, mr. Chairman. Mr. Heller, can you walk me by what happens when in pennsylvania a working family cannot get Insurance Coverage . What happens as people cannot own their home or if they are a renter they do not have the protections they need if disaster strikes. They oftentimes do not have a place to go for loss of use if a building comes down. We are seeing for some people who cannot make premiums, they are being forced into a policy by their Mortgage Company were there more to where the monthlyco Mortgage Rate goes up we see people who cannot afford their coverage paying for the insurance for the Mortgage Company anyway. So one way or the other. Either you are uninsured and losing your home were forced into a coverage that does not protect you or you dont have the coverage as a renter for what you need when disaster strikes. It is catastrophic for individual families after disaster strikes, rather it is a home fire, a flood or a wind storm. Is there ever a good reason to penalize new building solely based on their z. I. P. Code . This is one of the problems, the history of redlining in america has been such a troubling one. We see a dating back to the 1930s. When we have people who built safe homes as a building, wherever they are, we should give the insurance to them so that we can encourage that type of production. We want to talk about getting away from high risk due to climate disasters, when people try to build in communities that because iof the quote and redlining history cant get insurance, then we are giving people no options. It makes no sense to have this high influence of the cold on a Home Insurance price. It is just devastating. What is the financial benefit of proactive Land Use Planning . It means lowering the cost of risk and that means lowering the cost of insurance. It means safer homes and safer amenities. Pennsylvania has done a lot of work investing in that front end. Either we protect before disaster strikes or rebuilding with taxpayer cost afterwards. The protection is not only good for communities and families it means the Community Come Insurance Companies have less risk to bear and can charge lower premiums. I am sorry, senator vance is recognize. Thank you and welcome to the folks testifying. We appreciate your time. I welcome for mrs. North, a graduate from my neck of the woods. I appreciate you all being here. I want to focus on the california model and if there is something fundamentally broken with the way california regulates its Insurance Market. We all agree we want people to be able to afford Home Insurance whatever their station in life, there are two ways to do that. One is to help lower income people afford insurance in a market that is reasonably regulated and operates effectively. Another option is to try to regulate the market such that it cannot function and does not provide the benefits insurance is supposed to provide. I worry that california has gone down that pathway and we risk learning the wrong lesson. I want to direct my questions first two mr. Theodore. Could you maybe explain prop103 and what it changed in the state of california . In 1988 the ballot proposal was passed by a slim margin in california. It gave a 20 rebate to automobile insurers. It introduced the intervenor process where parties could argue for rate decreases. It established a provision that indicated the Insurance Department would respond within 60 days. Those are the three main things, and prior approval of rates. Am i right that the Regulatory Regime that has come out of prop103 is very backwards . In other words insurers are focused on accidental loss and casualty loss as so happened in the past as afford to ford modeling for future risk . Those were two statues that were introduced. One prevents them from using the recent experience of catastrophe. Another statute prevents the use of incorporating reinsurance costs. Those are two other provisions in the california statute which are in addition to prop103. Thank you. Mr. Heller, i want to direct this question to you. One of the arguments that i have heard is the reason insurance rates are so high in california is because of the threat of Climate Change. Of course places that are closer to the ocean theoretically going to be more at risk to climate related disaster. I guess the question is how can we credibly argue climate risk is what is driving californias Insurance Market when they are more backward looking them cofo looking. I the risk to Climate Change is in the future and not in the past. You see all types of Casualty Insurance rates going up. It is one thing to say property insurance goes up, it is a little higher to swallow the idea that Auto Insurance will go up yet that is exactly what we see in california. I have been working in the california Insurance Market for over 25 years. I would like to start by noting there is real misinformation. From 2019 until the present, and i really want you to hear this, california have been one of the most profitable markets in the nation, vastly more than the country as a whole. The companies are not leaving, they are cutting back on their business. It is not because they have been able to make the return that they have asked for. They have actually done better in california. Since 2021 they have received 95 of the rate increases that they requested. It does work but also allows public input and that has been critical. The mac is that profitability because they have effectively left the riskiest markets and focus on the most profitable . It is because california has given them the rating they need and invested in more than 2 billion of wildfire prevention. We have done the work and use the regulatory protections to ensure prices were escalated as they needed to be, it also maintaining the protections that you mentioned. Lo weve talked about the fact reInsurance Markets are escalating to the highest point in over 30 years. California does allow Insurance Companies. There is no statute that prevents them from buying reinsurance. They cannot pass through the excess of what is actuarially indicated on to consumers. In states like florida, louisiana and colorado the premiums are much higher, but they are also seeing withdrawals from the market and companies underwriting out certain communities. The passthrough of reinsurance allows the Insurance Companies to be free from that exorbitant unregulated market. It does not protect consumers from withdrawals. That is happening everywhere. Could you address the climate question, specifically in relation to auto versus property insurance . Climate does impact auto to a degree obviously on the comprehensive policies, but substantially less. I disagree with the fundamental point about climate. The ratios going through the midwest are driving some of the highest rates. Climate changes hitting everywhere. I do not want to mistake this is a coastal issue. It is really a national issue. We would all agree california is probably more at risk than the state of ohio. The auto Insurance Market in california is not t different tn around the country. Auto insurance in california because of the protections from prop103 prevented Insurance Companies are getting as much of a windfall during the pandemic. Around the rest of the Country Companies kept on charging even though we were all stuck at home. Now there has been inflationary pressures because of car repair costs that are more driven by postcovid i think then Climate Change. We are seeing rate increases. But as the Washington Post reported the other day they are as severe around the country and it is not a california specific thing. Senator warren of massachusetts is recognize. Thank you. Insurance is there for Natural Disasters like floods, fires or storms. Climate quchange means natural e disasters are hitting harder and more frequently. That is a pending the Insurance Market and pushing insurers out of entire cities or even entire states. Without insurance millions of families will be at greater risk for climate crises. As whole communities lose access, the impact is going to be felt all the way through our economy. Lets talk about with some of the tools are to make some changes. More than two years ago President Biden issued an executive order telling the federal insurance office, whose job it is to monitor the Insurance Industry and examine the impact of Climate Change on private insurance in the United States. Sio proposed to collect new data that would help the government better understand climate related financial risk and to assess the potential for major disruptions of private Insurance Coverage across the country. Mr. Heller, with the data that fio is proposing help identify the threats to consumers and the economy from Climate Change . With the data be useful . Yes, of course they would. We really need to understand with granular data where the industry is more exposed point where coverage offerings are shrinking and consumers become more exposed and how Risk Transfer has changed over time. The pressure to keep information from getting to the public and not just through fio, but for years that we have seen this kneading of data if one of the reasons that the market crisis feels so sudden. We have not been collecting this data. I can tell that im talking to another data nerd. We want to get the numbers, because they are helpful in helping us understand and assess risk. If the information is important we need the information. The president has asks. Why dont we have it . It has been more than two years. It turns out the insurers and state regulators are pushing back. They say collecting the information is unnecessary, ill advised and burdensome. They have claimed this data call with threatened socalled existing efforts that insurers have made to mitigate the risk of Climate Change on policyholders. They are even saying that the fio and Biden Administration is strongarming insurers and regulators to adopt climate risk mitigating strategies and this can lead to higher compliance and higher premiums on americans. It seems to me that the insurers and the regulators are going out of their way to hide r information about premiums, claims, profits and coverage. Without that information consumers have no way of knowing if a hiked premium is justified or if it is just patting an Insurance Companys profits. You explained why we need the data. Why are the Insurance Companies resisting so hard on providing the data . The Insurance Companies do not want us as the public and also Public Policymakers to really understand where things stand. It allows them to do what weve seen in california if only e regulators and policymakers by saying we are going to leave if you do not deregulate. The reason fio made the request is because it was a black hole where all the data needed to be where we can figure this out for ourselves and understand is a just a problem of Regulatory Burden . Is it Insurance Companies that did not do the preparation . Is it the companies that have been shifting their books to protect their profits and expose more consumers . That data call would reveal it and that is why they have lobbied to keep it out of our hands. I very much appreciate the notion. I take it mrs. Norris that you would agree that we need the data. Data is essential for making good policy and evaluating what the Insurance Companies are up to . Absolutely. We know the data is out there. They are using it to evaluate risk and decide what the premiums are and we should all be able to see the transparency. I am all for transparency. I appreciate the work that you are doing. This is a reminder that the Insurance Companies have been playing every part of this game. They have underwritten financing fossil fuels and then profit from selling protection from the impacts of those fossil fuels amon climate. And now when climate risk are rising they are trying to hang American Families out to dry and demanding higher premiums or to get out of the market altogether. There is a lot that poses real risk. We need the data and we need it now. Thank you. Senator kennedy is recognized. Can we agree that the fema administered national Flood Insurance program risk rating 2. 0 is woefully inadequate, mr. Heller . Yes. Mrs. Morris . Yes. Two jerry, since i cannot say your last name. I would not say woefully inadequate. Okay. In perfect as it is, does it make sense to you, mr. Heller, to allow the national Flood Insurance program to expire . No, it doesnt, short of a better solution would need to have the backstop. We absolutely should keep that around. We are not likely to get that in a few weeks, are we . No. Mrs. Norris . I do not think it makes sense. It needs to be funded and reformed as needed. Mr. Jerry . I think it should be allowed to continue and not with a shortterm kicking the can down the road. I think there needs to be more certainty about the availability. Five years or maybe 10 years is more in order. Mrs. Norris, if the world became Carbon Neutral by 2050 do you believe that would solve a lot of the problems of the cost of Flood Insurance and property and Casualty Insurance . Senator, that is a pretty loaded question. I am not a scientist. I do think that is a wonderful thing to think about. I have thought about it. Hopefully you have also. Mr. Heller, what do you think . It is not going to solve the crisis that we have now. It is a part of the risk projection. S we are trying to make risk plans going into the future. We have to begin to solve the problem. You dont think it will solve the problem . Not todays problem. How about you, mr. Jerry . I think it is a solution to a different issue to pollution, omissions, and what we are going to do during the transition. If you were king for a day, mr. Jerry, tell me what you would do to fix the problem of the cost of property and Casualty Insurance today . I was on a spotlight on the areas where there is disruption. Give me three specific things that you would do to fix the cost problem today in english. At the california legislation would repeal prop 103, to have florida continue its tort reforms. And the third is to educate the public about how insurance works. They know how it works, is called write oa check. And then you have to sell blood plasma to go to the grocery store, which you probably have to do anyway because of President Bidens inflation. Mr. Heller . No shiny objects. We need to be putting money into protecting homes and making sure the levees are strong. Government subsidies . I will call it alternative. Call it anything you want. When commercial sector was afraid they were not going to be able to get terrorism insurance we came and we created a solution. So the government gets into the reInsurance Business, whats number threeto . Lets get the regulators on the ball in the states to actually go through some of the data. Number three get the regulators on the ball. What is number four was to mark i get four, thank you. I think number four is to address for the needs of cilowe and moderate income people by making sure that we are not creating a Insurance Market that slices and prices based on socioeconomic status. Im going to give mrs. Morris a chance. Mr. Sherard, i can give you a chance to answer. Im going to affirm everything that was mentioned. We need to invest in being able to get our communities and our buildings resilient. Okay, government subsidies. Number two, we have to stabilize the market. Okay, thank you. Senator van hollen. Thank all of you for your testimonies. I will get to it, but i also want to raise some of the questions senator kennedy raised. Mrs. Morris, thank you for pointing out seniors and low income individuals are especially vulnerable in suggesting proposals to address that, including, as we have discussed, mitigation and resilience. I think mr. Heller has talked about that. I think there is agreement that the headline from the Washington Post a few days ago sums up the problem. Home insurance cut Natural Disasters from policy as climate risk rose. Some of the largest u. S. Insurance company say extreme weather has led them to end certain coverages, exclude Natural Disaster protections and raise premiums. All three of you agree that is a problem . Absolutely. If i understand you indicated a price caps placed in california have exacerbated the problem. Clearly there is some price point at which Insurance Companies have to raise premiums to cover the cost of damage and if someone caps the price lower than that they 7 will exit the market. That is your point, right . Yes, it is capped at 7 . If you remove the cap, and i understand your argument, you have to choose between exiting the market or raising the premium. The alternative is to increase premiums on homeowners including many low income homeowners . Right, and to encourage not living or building in the wildlife interface. There was a 39 increase in people building in the forest of california where they are exposed to the wildfires. Fort lauderdale is the sixth largest places for people to build. Build smart and do not build in areas where you are going to get hit. He met i was listening to the responses to senator kennedys questions and in a lot of the proposals it involves some form of government subsidy rather for resilience or an sip approach. Is that correct . I was say the nfip could be converted to a reinsurance backstop. If i could quickly say there are no price caps in california. That is a falsehood as a way to create a fake demand. Over the last two years the average premium increase, unfortunately rate increases have been 12 1 2 . It is just that the companies have to justify their rates to be accountable. I wanted to correct that. I am all for collecting the data and joined senator warren on her letter to collect the data. We all know that we have a problem. We have a Climate Change increasing the extremity and the intensity and frequency of Natural Disasters. It obviously has a cost. The question in my view is who is going to pay the cost . In my view we should look to those who have actually generated the reason for the damage. I do not think taxpayers should have to pay for this. The market failure here is to price the cost of Carbon Emissions into the atmosphere that is heating up the atmosphere and causing these Natural Disasters. I would just submit rather than ask the taxpayers to have to be the ones who come forward we adopt a proposal which i have for and will continue to pursue to create what i call a polluter pays fund. And as the biggest emitters of Greenhouse Gases to help cover the cost of some of this. Rather it is through a system or some other type, it deals with the externality that is not currently captured. If i could get a response from each of you. The Consumer Federation of america would be supportive of that. Let me make a slightly nuanced point. The Insurance Companies continue to underwrite a lot of the fossil fuel producers and use the investments or our premium dollars to invest and make a good return. As they profit off of these factors that drive Climate Change they downstream the e external costs to the homeowners and Property Owners and nonprofits that have homes through the Insurance Premiums. They make the profit on the front end with investments and downstream the cost to consumers in our premiums and reduced coverage. I would absolutely support there being a private sector source to cover these costs so it doesnt just flow down into individual families. Yes, a privatesector source based on those responsible. Thats right. I think its a great idea. I would also say Climate Change, which is now here and we are all seeing it exacerbate, if we had started a single solution 10 years ago maybe we could have mitigated some of the issues that are here today. We need this and more solutions. I was up for that along with many of the others that have been brought to the table. Y we have to act in order to fix what is currently here right now. I think the intention is noble but may miss the target. The largest emitters and the largest fossil fuel companies drilling, exploring and refining are outside of the ordinary Property Casualty Insurance Marketplace. They have captives. They have their own inside Insurance Companies which could be beyond regulators. We will be essentially capturing the fees based on an those who have polluted and they would have to defray the cost. It is a marketbased solution. Thank you, mr. Chairman. I would like to start by reiterating the importance of preserving our statebased system of insurance regulation. A system that has effectively protected consumers for over a century. I am concerned that la the recent actions risk undermining the very premise of the system. Rather than leveraging the expertise of state insurance regulators, treasure really treasure is acting unilaterally including by requesting a plethora of highly detailed Climate Information from insurers. Not only has treasury been unclear with how they intend to use the data that they collect, but the effort would be duplicative in many ways as many states and the naic already collect similar data to help them understand the s Economic Impact of Natural Disasters and weather events. Any efforts from treasury to sidestep state insurance regulators lately undermines congressional intent. Fio should work with and not around state insurance officials that have decades of experience in assessing the market impacts of these catastrophic weather events. In this regard we have had an active Hurricane Season last year and have already seen a number of named hurricanes in 2023. The frequency has inevitably impacted the property Insurance Market. Insurance premiums like all prices are market signals to consumers. In the space the higher the Insurance Premium indicates the existence of a higher risk. As someone who left my house, he my cars and my things in a storm, i get it. I also come from a state ravaged by storms whether they be tornadoes or hurricanes alike. I understand the importance of getting g this right. In response to higher Insurance Premiums safe i california have minute overly restrictive regulations, including price controls on insurers. In essence this deprives homeowners a signal that could steer them toward less dangerous building or encouraging them to build more disaster resistant homes. I want to get your thoughts on that statement. Can you tell me do you agree with that . Yes, 100 . I agree that the efforts to get more data from Insurance Companies on catastrophes and it is there. There is data that looks at natural catastrophe, frequency and severity. Because there was disagreement about whether there is increasing severity and frequency we have been studying this in a publication that should come out in a few months. Also, the federal insurance office, if you look at his remit what is is statutorily supposed to do . To monitor the industry and not to direct or insert itself. In many ways it is an agency without a mission. It was created in terms of dodd frank. The federal efforts that have been introduced, however well intentioned have not been successful. If we look at the financials and the way that the efforts to launch federally backed backstops have failed going back to hurricane andrew in 1992. Lets not repeat the mistakes of the past. Absolutely. I want to transition into bragging on my state. We have heard a number of questions and different solutions. I want to tell you somewhere that i believe alabama has gotten it right. We have seen what effective regulation and active resiliency looks like. We have had a state Grant Program that incentivizes homeowners to fortify roofs to withstand Severe Weather. The program was a response to damage ensued by ivan in 2004 and katrina in 2005. Created to incentivize investment and encourage insurers to continue issuing policies in the storm prone communities with the goal of reducing future hurricane damage. One Hurricane Sally hit in 2020 i am proud to say the nearly 16,000 homes and tebuildings wi fortified rules remained in tact. This resulted in lower insurance claims with less debris cleanup and allow the community to reopen and recover more swiftly. This is what effective action looks like were state officials assess an event, identify a solution and put into practice without Regulatory Overreach something that works. Additionally, just last week due to the great work of the governor, the commissioner and director the new Alabama Resilience Council met for the first time. The counselor will focus on publicprivate collaborations to help build stronger, safer and more resilient communities. This is just another great example of effective state driven solutions. I am out of time, but i certainly appreciate any comments you have on the great work that alabama is doing. It is my yunderstanding louisiana have copied the program, which is a good thing. I was a it doesnt have to be government that provides the funding. I am a homeowner. I replaced the roof of my house. I called my Insurance Agency and i got a credit. During the right behavior will lead to lower losses and lower premiums. In my written testimony i pointed out the program. This is a model where government can partner with community. Unfortunately not enough Insurance Companies are incentivizing when they do invest in their homes. I think this is a very important piece of the effort and while we focus so much on front end work rather than trying to clean up after the disaster with fema money when we could be doing it with insurance money and better and more resilient homes. Let me follow up on the conversation. As someone who work closely with our state i believe the states have incredible data that should be utilized as well. Mr. Heller, let me touch on this, you noted that nevada regulators offer expedited review for insurers who submit filings to add discounts for homeowners to take mitigation measures. What are some of the ways we can encourage insurers to incorporate mitigation incentives when they set the xa premiums . This is an incredibly important thing and we have worked with the Nevada Division of insurance on exactly this, by laying out clear discounts that Insurance Companies should be providing based on the science. We have groups like my colleague at united policyholders. We know when you build stronger rules, when you clear brush and take these actions you can reduce the risk and that reduces premiums. Unfortunately too Many Companies have not follow through. Many are. More in california are required to. States should be looking at nevada and california and looking at what is being done in alabama. When we make ourselves safer reduce the risk and we reduce the cost. This is the kind of work that we should be focused on rather than conversations about the runaway Consumer Protections. In nevada we have seen rains and extreme weather absolutely happening. Flooding that has been devastating to some structures, particularly in southern nevada. I know nevada has worked hard for its communities. I will say the u. S. Army corps of engineers has helped us in certain areas. But i do agree there needs to be more opportunities and incentives to lower those premium cost. While i have you t talk about manufactured housing. In your written testimony you know the people who live in manufactured homes pay more for lower quality Homeowners Insurance. Can you explain how policy seemed to fail some of the 20 Million People who live in manufactured homes . Yes. That is one of the more disastrous segments and of course it hits lower income homeowners and older homeowners quite a bit. These policies written for manufactured homes are generally now actual cash value. They depreciate the value of the home you need to file a claim so you dont get everything you need to fully rebuild. They have weird exclusions. For example hvac systems are considered contents, which have less coverage so its harder to do that. For some people you can even collect your full claim is you dont rebuild in the same place. If your home park does not reopen you cannot rebuild. You dont even get to use the policy that youve been paying for. Yet these manufactured homes or the policies in which the market is less competitive are more expensive. It is a really tough market to be someone living in a manufactured home and try to get their coverage. Particularly at a time were manufactured homes are different than those of the past, correct . More people should be taking advantage of the lower cost for manufactured homes to put a roof over your head and provide you a level of comfort and security. In a way the industry is trying to ensure homes from decades ago. Weve done a really good job of making more Affordable Housing for manufactured homes. Yet the Insurance Products are substandard for people who either because they want to or because its really all they can afford are in these communities and types of homes. We need to do a better job to make the Insurance Coverage better. Regulators need to pay attention. They are not good enough. Thank you. Our nation desperately needs a portable housing and nevada is no different. Pl i appreciate your testimony telling us rising insurance costs undermine not just the future of affordable properties, but those that currently provide homes to people. Can you expound on the statement that providers may be forced out of the Affordable Housing market because of insurance and operating costs outpacing feasible rents . In queue for the question. The Affordable Housing community is a regulated world. There are a lot of different programs, but they all run on basic principles. Number one, people that move into our communities are people who need to. They cannot make too much money. Rule two is we cannot charge them too much money to live there. That is basically the two rules of Affordable Housing. Essentially whenever you have a serious situation with these catastrophic increases of expenses that arise quickly, there is no way to do an adjustment of the rent and nor do we want to. We do not want to do a dramatic increase for folks who cannot afford it. What that leaves us with is a situation where our expenses are crushing our operational margin or our ability to meet cost. That is a real problem. Because the regulators often for example with hud, we can go and ask for a rent increase, but if an Insurance Premium which hits in the middle of the year and weve already gotten our rent increase we cannot ask for another. If we ask the next year it may take a significant amount of time to approve. We are set in a position where those rents cannot possibly meet expenses. It forces us as an owner to make really bad decisions. We have to either stop doing certain services, we have to defer any expense that we can. Eventually it could end up saying we cannot afford to do this. It could put those properties at risk, which could put at risk homes. And thats 100 or 200 people at a time. The impact on Affordable Housing is significant, especially compared to even the market. Does that make sense . It does. Thank you. One minute. I just wanted to add onto one point, because of something that you brought up. Nonprofit organizations are having a lot of trouble in the property Insurance Markets. You have been working on making the Risk Retention groups availablesh to nonprofits. These are alternative mechanisms. I think that is something we need to make sure we add into the mix. It is an opportunity to have a solution that will help avoid the chaos we are seeing for nonprofit Housing Developers as well as other nonprofits. I want to thank them for sharing on my behalf. Thank you to the three Witnesses Today for being here and providing testimony. Senators who wish to submit questions they are due one week from today. The three of you have 45 days to respond. Thank you for that. One other thanks to Jordan Harris who will be leaving at the end of the week to take a job working on equity issues. Congratulations. The hearing is adjourned. As part of a new series we are asking you what books do you think shaped america . The sound and the fury. Nobels progress. To kill a mockingbird. 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