Frequent and severe weather events, intensified by climate change, impose billions of dollars in damage annually. Insurers have responded to these climate-related financial risks by withdrawing services, hiking premiums, and gutting coverage—actions that are affecting many U.S. households’ and businesses’ ability to obtain sufficient insurance coverage at an affordable rate or, in some cases, altogether. These actions disproportionately harm low-income communities and communities of color, who are most likely to live in climate-vulnerable geographies, are the least able to prepare for and recover from natural disasters, and have long had the fewest insurance options to begin with.
The magnitude of these risks on insurers and consumers is not well understood by policymakers at the state and federal levels due to insufficient data. Unlike other financial companies, such as mortgage lenders, insurers are not required to provide granular information to their regulators. Ameliorating data gaps has historically been challenging, in part, because insurers are regulated at the state level, which has complicated attempts to promote consistent and robust standards. Additionally, insurers have resisted reporting requirements, claiming the data are proprietary.
In a positive development, the National Association of Insurance Commissioners (NAIC), in coordination with the Federal Insurance Office (FIO), announced a data call from homeowners insurance providers across the United States in March 2024. Data collection is an important step toward enabling state and federal policymakers to analyze and address climate-related financial risks in insurance markets, as well as availability and affordability issues.
After detailing what’s covered and what’s missing in the data call, this column outlines recommendations that the NAIC and FIO should consider to maximize the effectiveness of this effort.
What’s included in the data call?
In the majority of states where the insurance commissioners have agreed to participate, the NAIC will collect ZIP code-level data from large homeowner insurers from 2018 to 2022. The NAIC estimates the data will capture about 80 percent of this market. The data call asked insurers to report the costs of premiums and losses. They will also provide data on deductibles and information on policy discounts for customers who make home upgrades to protect against damages from natural hazards.
Companies’ data were due to the NAIC by June 6, 2024. The NAIC will now anonymize the data and share that information with the FIO by late June through September.
What’s missing in the data call?
The data call is limited to owner-occupied insurance products—homeowners and dwelling fire insurance. While it is critical that regulators further scrutinize issues affecting homeowner insurers, there are several other segments of the market that should also be studied to assess availability and affordability of property insurance and property insurance markets.
For example, information on renters and manufactured housing policies are not captured by the NAIC data collection. Black, Hispanic, and young Americans are more likely to rent than to own homes, and renters tend to be significantly less wealthy as opposed to homeowners who tend to be whiter and wealthier. Additionally, manufactured homes, sometimes called mobile homes—which are occupied mostly by low-income residents—perform particularly poorly when facing impacts and destruction from natural disasters. Without information on these insurance policies, regulators may not be able to thoroughly study how climate risks to insurance markets are affecting underserved consumers and those less able to financially withstand catastrophe.
Other missing segments include insurance for homeowners associations and condominium associations; auto insurance; force-placed insurance, which is the insurance a mortgage lender imposes on a borrower’s property if the borrower’s required insurance has lapsed; flood insurance; and more.
Additionally, as private insurers continue pulling back from climate-vulnerable markets, pressure has grown significantly on state-run residual providers. These insurers, intended to be a last-resort option, have become many households’ only option for accessing insurance coverage. Generally, residual markets provide narrow coverage at costly premiums. It is unclear if these providers will be required to submit data to the NAIC.
Another limitation of the data call is that not all states have elected to fully opt into this exercise, despite their membership in the NAIC, including in markets disproportionately burdened by dual climate and insurance crises. Officials in Florida, Louisiana, Texas, and other states indicated that they will not ask insurers for the information or will only share limited information from insurers. However, carriers located in participating states are expected to provide information for all the states where they write policies, so there may be some insight into nonparticipating states.
Recommended next steps for the NAIC and FIO
First, where states have wavered, the FIO should employ its statutory authorities to fill in data gaps. Acknowledging the challenges of state regulation, Congress created the FIO after the 2007–2008 financial crisis and charged it with the mandate to monitor the insurance industry as a whole. The Dodd-Frank Act gives the FIO the ability to compel data directly from insurers, whereas the NAIC—which is a nongovernmental coordinating body of state insurance regulators—does not have such legal authority, and membership in the NAIC is voluntary. Without complete, granular data from all 50 states, subsequent analyses may fall short of assessing the breadth of risks insurers and consumers face.
Second, these data should be made publicly available to allow evaluation by a wide range of stakeholders. Insurers’ decisions on coverage and cost are based on proprietary data and modeling, but they provide little public insight into how these assessments are made or how they affect outcomes for consumers. Policymakers, researchers, and public interest organizations are working to assess this availability and affordability crisis as it unfolds in real time but lack sufficient data to do so. Since these data will be aggregated at the ZIP code level and anonymized by the NAIC, sharing this information publicly should not run afoul of privacy and confidentiality concerns.
Third, in addition to conducting their own analyses, the NAIC and FIO should also collaborate with other financial agencies to understand how changes in insurance markets may affect other exposed institutions, such as banks. Insurers are highly interconnected players in the U.S. economy. For example, the Federal Reserve recently published summary results from its first-ever climate scenario analysis exercise with the six largest U.S. banks, in which all firms identified insurance data gaps as a hindrance to accurately assessing their risks.
Finally, routine data reporting should be established, and future data reporting should be more timely and more granular, with detailed transaction reporting on a quarterly basis, matching the reporting of other financial services companies to their regulators. In addition, the NAIC and/or FIO should collect information on additional types of property insurance and from state residual markets.
Conclusion
The NAIC-FIO data call is an essential first move toward promoting transparency into how climate change is challenging insurance markets and allowing policymakers to target much-needed solutions to address these risks. Expanding the collection and making the information widely available are critical to this effort’s success.
The author thanks Carly Fabian, Birny Birnbaum, Jessica Garcia, Emily Gee, Alexandra Thornton, Shannon Baker-Branstetter, Shanée Simhoni, and David Correa for their thoughtful review and comments on this column.