“Being uninsured poses a potential threat not only to individual homeowners but also to communities and our national housing stock,” CFA explains in EXPOSED: A Report on 1.6 Trillion Dollars of Uninsured American Homes. “Being uninsured can foster deeper economic precarity for millions of homeowners across the country, especially those with lower incomes, and it is an important contributor to racial inequality. Inequalities in who has homeowners insurance will likely widen the long-standing racial wealth gap, as uninsurance disproportionately impacts Hispanic, Black, and Native American homeowners. Over time, insurance access is likely to become a key decider of who can fully reap the benefits of homeownership, including maintaining their home and building wealth.”

Using data from the American Housing Survey and American Community Survey, CFA found:

• One in thirteen American homeowners are uninsured—approximately 7.4% – living in about 6.1 million homes.
• Homeowners earning under $50,000 per year are twice as likely to lack insurance compared to homeowners in general. Among lower-income homeowners, 15% are without coverage.
• Certain demographics of homeowners are disproportionately at risk. 22% of Native American homeowners, 14% of Hispanic homeowners, and 11% of Black homeowners have no insurance.
• 35% of owners of manufactured homes and 29% of homeowners who inherited their homes lack coverage.
• Rural homeowners, those living in the metropolitan areas of Houston and Miami, and in Mississippi, New Mexico, and Louisiana are most likely to not have homeowners insurance.
• In 2021, an estimated $1.6 trillion in property value of homes lacked coverage. This includes $339 billion of uninsured Hispanic-owned homes and $206 billion of uninsured Black-owned homes.

“Many consumers are struggling to afford rising premiums and must go without homeowners insurance,” said Sharon Cornelissen, PhD, CFA’s Director of Housing and co-author of the report. “That puts them at risk of losing everything. One storm or wildfire means they have to go into deep financial debt to repair their home, live with unsafe and inadequate housing, or even become homeless.”

The report concludes with the following recommendations:

• State insurance regulators should collect more data to track homeowners insurance gaps and inequalities in insurance markets. Despite decades of proposals, regulators have consistently failed to collect granular and timely data needed for research, and so information and analysis about homeowners insurance is in its infancy.
• Problems in the homeowners insurance market pose a systemic threat to housing markets, and solving them will require extensive investments in mitigation. States and the federal government need to substantially increase investments in community risk reduction, home fortification and loss mitigation, and develop strategies to reduce insurers’ overreliance on unregulated, global reinsurance.
• Regulators should collect more information about racial homeowner insurance gaps. Historical work about racial discrimination in insurance markets has demonstrated the broad incidence of insurance “redlining,” similar to the denial of mortgages in Black and Hispanic communities. Insurance companies have not been held accountable for this; more research should be done and regulators should use existing Fair Housing laws to investigate these gaps, and if needed, to correct them.

“Insurance is an essential part of homeownership, financial security, and community resilience. When millions of American families simply cannot find or cannot afford insurance coverage for their home, we are all exposed,” said Douglas Heller, CFA’s Director of Insurance. “Not only are uninsured families unprotected, but the economic fabric of entire communities is also at risk if significant portions of residents cannot rebuild after a disaster. Our study should be a wake-up call for lawmakers, insurance and housing regulators, and the nation’s emergency management agencies.”

The post Millions of Consumers Lack Vital Homeowners Insurance, Resulting in $1.6 Trillion in Unprotected Market Value appeared first on Consumer Federation of America.

Today many consumers struggle to afford steeply increased premiums, while others find it difficult to obtain insurance in the private market altogether. Concerns are growing that many American homeowners are forced by financial realities to forego homeowners insurance, sometimes called “going bare.” But going bare puts consumers at risk of accruing significant financial debt to repair their homes, having to live with unsafe and inadequate housing conditions, or moving from homeowner to homeless after disaster strikes.

Based on an analysis of 2021 American Housing Survey data from the US Census Bureau,
this report finds that:

• One in thirteen homeowners across the United States are uninsured (7.4 percent),
equivalent to 6.1 million homeowners.

• Homeowners making under $50,000 a year are twice as likely as the general
population to be uninsured (15 percent).

• Homeowners of color are disproportionally at risk, with an estimated 22 percent
of Native American, 14 percent of Hispanic, and 11 percent of Black homeowners
having no homeowners insurance.

• Over one third (35 percent) of owners of manufactured homes, as well as 29 percent
of those who have inherited their homes, have no homeowners insurance.

• Homeowners living in rural areas and those living in the metropolitan areas of Miami
and Houston are most likely to not have homeowners insurance.

• Even with conservative estimates, an estimated $1.6 trillion in property value of
uninsured homes was at risk in 2021: this includes $339 billion of uninsured Hispanic owned homes and $206 billion of uninsured Black-owned homes.

We conclude by offering research and policy recommendations:

1. More data are needed to track insurance gaps and pre-existing and emerging
inequalities in insurance markets.

2. The precarity of the homeowners insurance market poses a systemic risk to our
nation’s housing markets. Fixing this will require both investing in risk reduction and
reducing insurers’ overreliance on unregulated reinsurance.

3. Unavailable and unaffordable homeowners insurance continue to impact the racial
wealth and homeownership gaps. We need more research that examines racial
discrimination in insurance markets

The post EXPOSED: A Report on 1.6 Trillion Dollars of Uninsured American Homes appeared first on Consumer Federation of America.

The nonprofit, nonpartisan consumer organizations issued the following statements:

Birny Birnbaum, Executive Director of the Center for Economic Justice, said:

 “Reforming the title insurance industry is an essential component of addressing home buying and homeownership affordability.  Iowa is the only state that has created a low-cost alternative to title insurance.  While a few states have made some efforts to address the anti-competitive practices in title insurance, state insurance regulators have failed to rein in excessive title insurance premiums.  We’re hopeful that these new federal initiatives will jump start action at both the federal and state level.”

Douglas Heller, Director of Insurance for Consumer Federation of America said:

 “The title insurance market has been broken for decades, and homeowners and new homebuyers have paid the price. At the moment when consumers are finalizing a consequential financial decisions – buying or refinancing a home – they are forced to purchase title insurance to protect the lender in a market built on kickbacks to the agents who direct consumers toward an overpriced title insurance policy. The insurance industry and the agents who steer consumers to these insurance companies have lobbied relentlessly to block reforms that would create substantial savings for consumers, so we are very encouraged that the President is shining a light on this broken system.”

Sharon Cornelissen, CFA’s Director of Housing said:

 “It is encouraging to see the White House look at potential reforms of the title insurance industry. Unnecessarily expensive title insurance has added to the upfront costs of buying a home, creating barriers for first-time homebuyers. Excessive costs like this have no place in a housing market that is facing its worst affordability crisis in decades.”

As a background on problems in the title insurance market, the consumer groups highlight CFA’s 2013 testimony to the New York Department of Financial Services and Birny Birnbaum’s 2005 Analysis of Competition in the California Title Insurance and Escrow Industry.

The post Consumer Groups Applaud President Biden’s Announcement of Steps to Address Homebuying Closing Costs and Excessive Title Insurance Charges appeared first on Consumer Federation of America.

How is this happening? Florida has a state-backed insurance company of last resort, called Citizens, which will insure consumers’ homes if they cannot find private insurance coverage. Citizens currently covers about 1.26 million policyholders in Florida, and Florida politicians are attempting to reduce the number of people getting coverage through this program. As a result, Florida has “takeouts,” where insurance companies can get thousands of policyholders and millions of dollars in premium without any costs. The policyholders get transferred from Citizens to a private insurance company; however, a lot of these companies that have received policyholders from Citizens have later gone bankrupt.

Slide Insurance, founded in 2021 by its current CEO Bruce Lucas, has received a considerable number of takeouts. The Washington Post reported that “insurance officials have awarded him [Lucas] the opportunity to take over far more policies than any other company, data shows — either directly from Citizens or from other insurers that have gone under or pulled out of the state.” All in all, Florida has granted Slide the chance to pick up over half a million policyholders, far more than any other company.

Unsurprisingly, this has attracted a lot of criticism. Slide Insurance responds to critics by saying that they bring stability and solvency to the market. And Florida regulators defend the takeout practice by saying that without this approach, there wouldn’t be a private insurance market in Florida.

But the actual impacts of these deals on consumers are terrible. Florida homeowners often get bounced from insurer to insurer, only finding out after the fact that their company has gone bankrupt. When their policy got acquired by Slide, one couple found that their premium increased from $1,350 to $6,000 for almost the exact same policy—an outrageous price hike that anyone would struggle to afford. As a result, they had to postpone important surgeries and their health suffered.

For Lucas, the benefits of these deals are considerable. Insurance company CEOs tend to be lavishly rewarded and over the past eight years, he earned $78 million. Lucas also told reporters that new Florida laws, which clamp down on lawsuits by homeowners against insurance companies, will make it easier for Slide Insurance to succeed. Lucas claims he is not political and has not participated in any meetings about these new laws. But The Washington Post found that “since 2018, Lucas and his companies have donated nearly $2.6 million — about $1.17 million in the past year alone — to key Republicans, including those in the Florida legislature who spearheaded the new legislation.”

This is evidence of a very cozy, and possibly improper, relationship. And before Lucas founded Slide Insurance, he worked for another company called Heritage. In 2013 he closed a takeout deal with Citizens, where Heritage got 60,000 policies and Citizens agreed to pay the company up to $52 million in retroactive premiums. Legislators attacked the deal, calling it corporate welfare, and other insurance companies complained that it was unfair. It later emerged that Lucas’s lobbyists met with then Governor Rick Scott before the takeout went public, that Heritage donated to Scott’s campaign, and that the Citizens board member who broke the tie vote in favor of the transaction was appointed by Scott.

More recently, Slide has been accused of getting still more sweetheart deals from the Florida government. For example, Florida’s Office of Insurance Regulation helped broker a $400 million deal where Slide took over a bankrupt insurance company. Slide and Lucas benefited handsomely but many policyholders did not. Instead, Slide denied their legitimate claims, made them jump through hoops and fill out excessive paperwork, and gave them inadequate payouts. And it has increased premiums for lots of consumers, sometimes by 500% or more.

Consumer Federation of America has previously written about insurance companies and their exploitation of consumers, and urged the Florida Office of Insurance Regulation to investigate and punish alleged wrongdoing. We have also criticized the Office for being cozy with the insurance industry and often being part of the revolving door, where insurance regulators go to work for the insurance industry or regulators come from the insurance industry. But if the Florida Office of Insurance Regulation is making unfair and biased deals with Slide Insurance at the expense of consumers, the fox is guarding the henhouse.

The Florida Office of Insurance Regulation (OIR) is supposed to make insurance affordable and accessible and protect consumers. If it is failing to do its job, it must be held accountable. Florida residents deserve better—they deserve government agencies that actually help them and safeguard them against abuses by insurance companies. We hope that in the future, Florida regulators will be neutral between consumers and insurers, stand up for consumers when their rights are violated, and not unfairly privilege an individual company over policyholders.

The post Slide Insurance is Getting Sweetheart Deals from Florida Regulators—And Using Its Power to Harm Consumers appeared first on Consumer Federation of America.

In comments to the OMB supporting the approval of the data call, CFA wrote:

“At the intersection of climate change and homeowners insurance, there are millions of American families worried that they cannot afford to protect their most significant asset, their home, or that the options to buy coverage and the quality of that coverage are shrinking. The fact that spiking insurance prices, diminishing availability, and coverage gaps in the homeowners insurance market could cause significant and systemic problems cannot be ignored….

FIO’s proposed data call will provide the granular data necessary to better assess the systemic risks and related concerns that derive from climate change’s impact on homeowners insurance markets. The stakes involved in this issue are huge. It is essential that we have good data available as we determine what is to be done.”

FIO’s updated data call proposal will require the nation’s 14 largest home insurers to provide data about their premiums, claims, and overall exposure to potential losses, covering the past six years of underwriting data. This data will be collected at the ZIP code level so policymakers and regulators can better understand how climate change is affecting insurance costs community by community.  It will also help to assess whether coverage gaps are more acute in communities of color and other historically underserved communities.

A copy of CFA’s letter to OMB is available here.

The post The Office of Management and Budget Should Authorize Federal Insurance Office Data Collection on Homeowners Insurance and Climate Risk appeared first on Consumer Federation of America.

CFA stated that rate hikes by insurers and announcements to limit sales or coverage in certain areas are wrecking havoc on consumers. Two of the biggest drivers of premium increases and regional availability crises are the interacting effects of climate change and the exploding cost of risk transfer in the unregulated, global reinsurance market. To address affordability and availability, insurance regulators must focus on providing and incentivizing more investments in risk reduction and loss mitigation. And to stabilize the insurance market, regulators must incorporate mechanisms that supplement the unregulated reinsurance market, such as a public mega-catastrophe reinsurance facility.

Finally, rising insurance costs do not stem from consumer protection laws that provide regulatory oversight or legal accountability for bad actors in the insurance industry. These claims–that consumer protection laws are the problem–are inaccurate and harmful.

The post Consumer Federation of America Testifies on Rising Property Insurance Costs and The Impact on Consumers appeared first on Consumer Federation of America.

“At a time of rising insurance costs, consumers need fair treatment and prompt payment of claims after Hurricane Idalia,” said Michael DeLong, Consumer Federation of America’s Research and Advocacy Associate. “After Hurricane Ian, there were many reports of insurers exploiting consumers by altering adjustments and trying to reduce payments. This must not happen again. We hope that insurance companies will be good partners in the recovery and rebuilding to come, but policyholders and regulators must stay vigilant to ensure fair treatment.”

“For home and business owners who have been devastated by Idalia, home and flood insurance funds should be the fastest and best source of recovery help,” said Amy Bach, Executive Director of United Policyholders. “Consumers need insurance companies to be fair and honest, and pay their claims in full and on time. United Policyholders and our Florida-based partners are mobilizing to deliver guidance and advocacy services aimed at making sure all available funds flow as they should. Visit United Policyholders’ Roadmap to Recovery program early and often.”

Many Idalia victims will be underinsured and uninsured for flood damage, and there will be big fights over whether the damage was caused by wind (covered in a home policy) versus flooding (excluded in a home policy). Home insurers should pay for damage from hurricane winds and falling rain.

Consumer Federation of America and United Policyholders recommend that insured property owners with damaged homes take the following steps.

• Contact your insurance company and report your claims as soon as possible. Depending on what caused the damage to your home, your claim may be covered either by wind insurance or flood insurance, or by both. Homeowners insurance policies generally do not cover flood damage.
• Document damage in photos and videos as thoroughly as possible, but only to the extent that it is safe to do so. Do not allow damaged items to be removed before they have been photographed and documented.
• Keep a daily journal with records of each time you speak or meet with insurance company adjusters, repair professionals, or anyone you are considering hiring. Note their name and the data and time of the contact.
• Maintain receipts for every cost you incur. This includes hotel and food costs when you evacuate, alternative living arrangements costs if you cannot return to your home, and anything you spend on making initial repairs to your home to prevent further damage. This may be covered under your home or private flood insurance policy. Temporary living expenses are not covered under NFIP (National Flood Insurance Program) policies.
• Check references and license status before you agree to hire or assign any of your insurance benefits to any professional. Post-disaster scams are quite common. Local help is preferable, but if it is unavailable, be careful and vet out-of-the-area pros before you sign on the dotted lines.
• If you run into problems or are mistreated by your insurer, contact your Insurance Department or the Federal Emergency Management Agency (FEMA, for flood claims). The information is below:

Florida Office of Insurance Regulation
1-877-693-5236
200 East Gaines Street
Tallahassee, FL 32399
Consumer.services@myfloridacfo.com
File a complaint: https://apps.fldfs.com/eService/Newrequest.aspx

Georgia Office of Insurance and Safety Fire Commissioner
2 Martin Luther King Jr. Drive, West Tower, Suite 702
Atlanta, GA 30334
consumer@oci.ga.gov
File a complaint: https://oci.georgia.gov/file-consumer-insurance-complaint

South Carolina Department of Insurance
803-737-6180
1201 Main Street, Suite 1000
Columbia, South Carolina, 29201
consumers@doi.sc.gov
File a complaint: https://sbs.naic.org/solar-web/pages/public/onlineComplaintForm/onlineComplaintForm.jsf?state=SC&dswid=-537

Federal Emergency Management Agency
1-800-427-4661
500 C St SW, Washington, DC 20024
https://www.fema.gov/about/contact

The post Tips to Help Consumers Get Fair Insurance Treatment After Hurricane Idalia appeared first on Consumer Federation of America.

“As three of the leading national organizations focused on protecting and advocating for property insurance consumers, we write to urge aggressive action against any insurer that has defrauded, abused, or otherwise mistreated Floridians in the aftermath of Hurricane Ian,” the groups wrote. “The stories of homeowners who paid premiums for protection but who are now living in trailers, shelters, and their own cars are heartbreaking and unacceptable. Your agency needs to be investigating and prosecuting the insurer fraud that contributed to this situation.”

In March 2023 the Washington Post published an exposé revealing that insurers and their adjusters were rewriting damage reports and slashing damage estimates to avoid paying claims for homes damaged by Hurricane Ian. The reported fraud by insurance companies has left some Floridians living in shelters or unsafe houses while the insurers refuse to provide the claims payments that are due.  The letter also highlighted the fact that over 33,000 Florida claims linked to Hurricane Ian are still open without payment, long passed the payment deadline, in addition to over 125,000 claims that have been closed without payment.

“Market Conduct Exams have been critical to penalizing and remedying illegal claims practices after past disasters, and it is critically important that Florida’s OIR undertake them now on Ian claims,” said Amy Bach, Executive Director of United Policyholders.

“Articles and witnesses indicate that insurance companies are cheating consumers in order to deny claims and avoid payouts,” said Michael DeLong, CFA’s Director of Insurance. “This all happened while, instead of worrying about insurance company accountability,  OIR and the Florida legislature were focused on special sessions to weaken consumer rights and diminish consumer access to Citizens Insurance. It is time for OIR and the legislature to prioritize consumer protection.”

In the letter, the groups call for OIR transparency about the investigations it has begun, a broad investigation of the industry’s behavior after Ian, real accountability for bad actors, and legislative reform that will strengthen consumer protections and increase transparency about claims handling.

The post Consumer Advocates Call for Strong Action Against Florida Insurers After Hurricane Ian Fraud Scandal appeared first on Consumer Federation of America.

The Consumer Federation of America (CFA) and the Center for Justice & Democracy (CJ&D) prepared the study. Written by Joanne Doroshow, CJ&D’s Executive Director, Douglas Heller, CFA’s Director of Insurance, and J. Robert Hunter, Insurance Director Emeritus for CFA, the study exposes how the industry is fostering a liability insurance crisis that it instigated in 2019, falsely blaming lawsuits, juries, and injured victims for premium spikes, summarizing their target of blame with the industry-invented term, “social inflation.”  The study reveals that, while businesses are being price-gouged, litigation data and the insurance industry’s own loss data show that claims are dropping.

Co-author Joanne Doroshow said, “This new study comes three years after release of CFA and CJ&D’s comprehensive study of the commercial property/casualty insurance industry, which showed how the industry has for decades been deceiving businesses, consumers and lawmakers as to the reasons behind premium spikes, and how it was then preparing the nation for a new insurance crisis of skyrocketing rates, while sitting on more cash than at any time in its history. Now three years later, Inventing Social Inflation, 2023 shows how rates have continued to rise even as payouts fell and litigation precipitously dropped. This was particularly so during the pandemic. Meanwhile, the insurance industry sits on a mountain of surplus money. The study also comes as the insurance industry has targeted particular states, like Florida, Iowa and New York, with false information about its true financial condition as it lobbies for laws that severely restrict the legal rights of everyday Americans.”

“Insurers aim to deflect debate from the data, which do not support the massive premium increases that have hit American businesses and non-profits, medical professionals, truckers, and other commercial policyholders.” said Douglas Heller, Director of Insurance at Consumer Federation of America. “It is critically important that lawmakers and regulators who want to help curb spiking rates focus attention where it belongs: on the insurance companies themselves.”

A copy of the full study is here.

The post Study Shows Insurance Industry Price-Gouges Businesses While Claims Drop appeared first on Consumer Federation of America.

Consumer Federation of America and the Center for Economic Justice, which jointly submitted an amicus curiae brief to the Supreme Court, hailed the decision as an important protection for Nevada drivers, especially as the elimination of pandemic-related financial protections puts many at risk of credit score declines. The rule that was upheld prohibits insurance companies from using credit-based insurance scores to increase premiums until May 2024. This means that drivers will be temporarily protected from insurance premium increases resulting from credit declines stemming from the financial toll the pandemic has taken on Nevadans.

“Thanks to the work of the Division and the ruling of the state Supreme Court, Nevadans who suffered during the pandemic and who may be financially vulnerable will be protected from unnecessary and unfair auto, home, and renters’ insurance rate hikes,” said Douglas Heller, Director of Insurance for Consumer Federation of America. “State law requires all drivers to carry auto insurance and banks require homeowners to maintain coverage as well. This rule will ensure that for the next year, people who are trying to get back on their feet won’t be penalized on their insurance premiums just because the pandemic created financial hardships.

“The insurance industry offered a miasma of misinformation and disingenuous arguments about unfair discrimination in insurance and the Commissioner’s authority to stop unfair practices,” said Birny Birnbaum, Director of the Center for Economic Justice. “Had the Court accepted these arguments, it would have effectively ended consumer protection in insurance in Nevada. Thankfully the Court rejected all the industry arguments. We thank Commissioner Richardson and the Nevada Attorney General for standing up to the insurance industry’s onslaught—funded by policyholder premiums!—against insurance consumer protection.”

As CFA and CEJ explained in its brief to the Court, the COVID-19 pandemic and responses caused massive disruptions, severing any link that insurers claimed to exist between a consumer’s credit history and their insurance risk.

The protections created by the Division’s rule will ensure that consumers whose credit declines over the next year will not face credit-related premium increases due to any change in their credit reports or credit-based insurance scores that occurred on or after March 1^st, 2020. The consumer groups are urging insurers to comply with the Court order immediately, and urging the Division of Insurance to take action against insurers that continue to impose credit-based penalties on Nevada customers.

The amicus brief of CFA and CEJ was submitted pro bono by Debbie Leonard at Leonard Law, PC, an attorney who focuses her work on advocacy and mediation.

Contacts:
Doug Heller, 310-480-4170
Birny Birnbaum, 512-784-7663

The post In Victory for Consumers, Nevada Supreme Court Upholds Temporary Ban on Credit-Based Insurance Price Hikes appeared first on Consumer Federation of America.

Consumers and regulators should keep a sharp eye out for problems and insurer misbehavior in the storm’s wake. While there will inevitably be many unique challenges and frustrations for Floridians in the wake of Ian, an overarching concern lies with a not-always-simple question: Water or wind? That is, was the damage to a home caused by flood waters, including tidal surges, or was it caused by hurricane winds and falling rain?

This will doubtless prove to be a billion-dollar question, because any damage caused by floods requires a home to have separate flood coverage. Additionally, some insurers have tried to impose so-called “anti-concurrent causation” clauses that claim to allow them to deny a claim for wind damage if a house also sustained flood damage. While these provisions should not apply in the wake of Ian, some insurers may aim to deny claims under this anti-consumer theory.

Many central Florida homes in counties affected by Ian did not have separate flood insurance, and inland areas that experienced massive rainfall and resulting flooding were not prepared. Flooding caused by Ian stretched far beyond the Federal Emergency Management Administration’s (FEMA) designated flood zones. Consumers without flood insurance can still get assistance from FEMA and other programs, but FEMA’s payments are capped at $38,000, which likely only covers part of the damage. Additionally, some families who do have flood insurance are discovering that it won’t cover all of their damages, since federal flood payouts for a single-family home are capped at $250,000. As a result, many consumers will struggle to recover from Ian.

Another concern to watch out for is insurance companies trying to take advantage of their (very conflicted) role as not only the adjuster of the home insurance policy but also the organizations responsible for making flood claims decisions for those customers who do have a National Flood Insurance Policy. This becomes an opportunity for serious fraud by insurers that try to avoid paying out claims by shifting the burden to flood insurance, even if the damage was caused by wind and other causes. After Hurricane Katrina, State Farm defrauded consumers and the federal government by pushing many of their claims to federal flood insurance when they should have been paid by private wind insurance. Consumers sued and won, and State Farm recently agreed to pay the federal government $100 million in restitution. Insurers may attempt similar schemes regarding claims from Ian. State insurance regulators and FEMA should carefully monitor claims to ensure that insurers aren’t cheating consumers and taxpayers by shifting state wind insurance claims to flood insurance.

The Florida Office of Insurance Regulation (OIR) and the South Carolina Department of Insurance should closely monitor insurers and investigate consumer complaints and reports of bad behavior. Some insurance companies resort to all sorts of unscrupulous methods to unfairly delay or deny valid claims. These methods range from intentionally confusing and obscure contracts to misleading people about their rights to simply delaying or low-balling claims in the hopes that consumers will get discouraged and give up or settle for lower payouts. The OIR should create a public-facing online tool that reports how each insurer is doing in terms of meeting important claims handling benchmarks – including the number of claims filed, the number of claims with partial payment, the number of claims closed with payment, the number of claims closed without payment, and the number of claims pending. The Florida Office of Insurance Regulation posted data on the first batch of insurance claims from Ian, which showed almost $474 million in losses. While that’s helpful, a company-by-company detailing of their responsiveness will go a lot further in terms of keeping consumers informed and holding insurers accountable.

CFA, in its recent tips for consumers, recommends that consumers with property insurance and damaged homes take the following steps:

• Contact your insurance company and report your claim as quickly as possible. Depending on the damage to your home, your claim may be covered by wind insurance or flood insurance, or both. Keep your claim number in a safe place—it is the most prompt way for insurance companies to locate your claim.
• Document damage in photos and videos as thoroughly as possible, but only to the extent that it is safe to do so. Do not climb up on the roof—leave that to the professionals! And do not allow damaged items to be removed before they have been photo-documented.
• Keep a daily journal, noting each time you speak or meet with insurance company adjusters, repair pros, or anyone you are considering hiring. Note their name and the date and time of the contact.
• Keep receipts for every cost you incur; this includes hotel and food costs when you evacuate, any alternative living arrangement costs if you cannot return to your home, and anything you spend on making initial repairs to your home to prevent further damage. This may be covered under your home or private flood insurance policy. Temporary living expenses are not covered under National Flood Insurance Program (NFIP) policies.
• Check references and license status before you agree to hire or assign any of your insurance benefits to any professional. Post-disaster scams are common. Local help is preferable but if not available, be careful vetting out-of-the-area pros before you sign on the dotted line.
• Contact your Insurance Department or FEMA if you run into problems. Contact information is below. And if you are being treated poorly by your insurer, do not hesitate to file a consumer complaint.

Florida Office of Insurance Regulation
1-877-693-5236
200 E Gaines St, Tallahassee, FL 32399
Consumer.Services@myfloridacfo.com
File a complaint: https://apps.fldfs.com/eService/Newrequest.aspx

South Carolina Department of Insurance
803-737-6180
1201 Main St #1000, Columbia, SC 29201
consumers@doi.sc.gov
File a complaint: https://sbs.naic.org/solar-web/pages/public/onlineComplaintForm/onlineComplaintForm.jsf?state=SC&dswid=3785

Federal Emergency Management Agency
1-800-427-4661
500 C St SW, Washington, DC 20024
https://www.fema.gov/about/contact

The post Consumer Tips: How to Get Your Payments from Insurance Companies and Hold Them Accountable appeared first on Consumer Federation of America.

Progressive calls these high-value customers the Robinsons. The Robinsons represent households who own their home and car and bundle their homeowners and auto insurance with the same company. An even more ideal Robinson household for Progressive would have multiple vehicles and drivers.

Progressive considers these customers extremely profitable for several reasons:

1. The company believes they tend to remain with their insurance companies for a long time, with 45% of Robinsons having been with their insurer for eleven years or more.
2. Many Robinsons (41% according to J.D. Power’s auto insurance survey) select their insurance company in order to bundle homeowners insurance and auto insurance, so they purchase additional products.
3. Progressive has already designed and streamlined its quoting system for these bundles, in order to attract Robinsons and make their shopping and signing up as quick and painless as possible.
4. 53% of Robinsons intend to renew their insurance policies with their current company, a much higher percentage than any other category of consumers.

For Progressive, the Robinsons are its ideal insurance customers and the company devotes significant time and effort enticing them to purchase policies. Insurance Journal notes that “they all represent the ideal scenario for lifetime value;” i.e., the total worth to an insurer of a customer over the whole period of their relationship. Progressive and other companies know that it is easier and cost effective to keep existing customers than to acquire new ones. Therefore Progressive goes to extreme lengths to specifically enroll the Robinsons, offering them discounted auto rates to begin a relationship, then encouraging them to bundle that initial policy with their homeowners insurance, and then suggesting additional policies and products.

If Progressive can successfully recruit the Robinsons, entice them to bundle their policies and is able to keep them happy and loyal, the Robinsons will wind up paying auto and homeowners insurance premiums to Progressive for years. If the Robinsons are wealthy, that opens up even more opportunities for products such as life insurance, a second home, a motorcycle, an RV or even boat insurance. These ideal customers are the foundation of Progressive’s profits since they tend to remain loyal, their premiums can go up year after year, and they buy more than one policy.

If, however, you are not a Robinson, Progressive will adopt a less favorable attitude, considering you of lower value. The Wrights are similar to the Robinsons except they do not bundle their insurance policies, and so aren’t as loyal or lucrative. Below them are the Dianes, who rent their homes instead of owning them, and have auto insurance and other products. And finally there are the Sams, who only have auto insurance. These customers are more inclined to shop around for different products and less inclined to remain with one company. The Wright families renew their policies with the company at a rate of 45%, and the Dianes and Sams are sensitive to price increases. So if Progressive increases the premiums for these customers, it runs the risk that they will investigate other insurance companies and switch to them if those companies offer better deals. Progressive prefers not to invest in serving the type of customers who are too price-sensitive to buy more and more coverage or to stick around when rates rise.

Progressive values customers who stick with them for a long period of time and who buy multiple products, and so the insurance company lavishes attention on their Robinsons. But the other customers that are savvier or that buy fewer products are considered less important and deserving of less attention. What Progressive blurted out during its finance call serves as a reminder that while the insurers present their good neighbor faces in the advertisements, they are not out there to make friends: they will track you, classify you, and slice and dice you before deciding how they treat you when you knock on their door. And if you’re a Sam or Diane, well there are no Cheers for you!

Even if you are a Robinson getting the best treatment, don’t forget that what they see in you is the opportunity to make the most profit. But with escalating premiums, consumers of every category are getting increasingly frustrated. We strongly encourage all consumers, Sams, Dianes, Wrights, and Robinsons alike, to take a careful look at their insurance company and comparison shop. Your insurer, despite their claims to the contrary, only views you as a source of revenue. And you should likewise be pragmatic. If they think of us as Dianes and Sams, you should consider them a Gordon Gekko or Mr. Burns.

The post Meet the Robinsons: Progressive’s Ideal Insurance Customers—And Woe to All Others appeared first on Consumer Federation of America.

“Getting claims paid after Hurricane Ian must not become a second disaster for the policyholders who will rely on the insurance companies in the weeks and months ahead,” said Douglas Heller, CFA’s Director of Insurance. “We hope insurers will be good partners in the recovery and rebuilding to come, but history tells us that policyholders and regulators must stay vigilant to ensure fair treatment.”

“Home and flood insurance funds should be the fastest and best source of recovery help for the home and business owners who’ve been devastated by Ian,” said Amy Bach, Executive Director of United Policyholders. “Finding trustworthy repair pros and temporary living arrangements will be very hard – the last thing victims need is insurers balking at paying in full and on time. Through our Roadmap to Recovery program, UP and our Florida-based partners are mobilizing to deliver guidance and advocacy services aimed at making sure all available funds flow as they should. Visit: www.uphelp.org/IAN early and often.”

Many Ian victims will be underinsured and uninsured for flood damage, and there will be big fights over whether the damage was caused by wind (covered in a home policy) versus flooding (excluded in a home policy). Home insurers should pay for damage from hurricane winds and falling rain.

The two leading national consumer groups recommend that insured property owners with damaged homes take the following steps:

1. Contact your insurance company and report your claim as soon as possible. Depending on what caused the damage to your home, your claim may be covered by wind insurance or flood insurance, or by both.
2. Document damage in photos and video as thoroughly as possible, but only to the extent that it is safe to do so. Do not allow damaged items to be removed before they have been photo-documented.
3. Keep a daily journal, noting each time you speak or meet with insurance company adjusters, repair pros, or anyone you are considering hiring. Note their name and the date and time of the contact.
4. Maintain receipts for every cost you incur; this includes hotel and food costs when you evacuate, any alternative living arrangement costs if you cannot return to your home, and anything you spend on making initial repairs to your home to prevent further damage. This may be covered under your home or private flood insurance policy. Temporary living expenses are not covered under NFIP policies.
5. Check references and license status before you agree to hire or assign any of your insurance benefits to any professional. Post-disaster scams are common. Local help is preferable but if not available, be careful vetting out-of-the-area pros before you sign on the dotted line.
6. Contact your Insurance Department and FEMA (for flood claims) if you run into problems::

Florida Office of Insurance Regulation
1-877-693-5236
200 E Gaines St, Tallahassee, FL 32399
Consumer.Services@myfloridacfo.com
File a complaint: https://apps.fldfs.com/eService/Newrequest.aspx

South Carolina Department of Insurance
803-737-6180
1201 Main St #1000, Columbia, SC 29201
consumers@doi.sc.gov
File a complaint: https://sbs.naic.org/solar-web/pages/public/onlineComplaintForm/onlineComplaintForm.jsf?state=SC&dswid=3785

Federal Emergency Management Agency
1-800-427-4661
500 C St SW, Washington, DC 20024
https://www.fema.gov/about/contact

Contacts:
Doug Heller, 310-480-4170
Amy Bach, 415-713-3040

The post Tips To Help Consumers Get Fair Insurance Treatment After Hurricane Ian appeared first on Consumer Federation of America.

However, numerous consumer advocates have pointed out that insurance has a long history of unfair discrimination, bias, and racist practices that result in unrepresentative workforces and injustices in the marketplace.

On Tuesday, September 20th, the House Subcommittee on Diversity and Inclusion held a hearing examining diversity and inclusion at the biggest insurers across the nation. They requested data from insurance companies that received direct premiums of $7 billion or more to report and comment on their practices and policies.

The results were not pretty. Despite a flurry of statements and pledges, from 2017 to 2021 there was little change in racial, ethnic, or gender representation among insurance company employees. In 2021, the largest insurers had a lower percentage of employees of color (30.5%) compared to banks or the biggest investment firms. People of color were underrepresented in executive level positions, making up only 16.2% of those positions. Women were underrepresented as well, making up only 33.5% of those positions. Both groups were underrepresented on insurance boards.

Actions speak louder than words; despite insurers proclaiming their commitment to diversity and inclusion, the Committee found that the average budget insurers allocated to these subjects was $5.3 million, or 0.24% of their average total budget. That means that out of every $100 in an insurance company’s budget, the company is spending 24 cents on promoting inclusion and recruiting diverse candidates.

Members of Congress were not impressed. Chairwoman Joyce Beatty (OH) called the report’s findings “disappointing” and told the witnesses “none of you are doing well enough.” When an Allstate representative attempted to spin these facts and claimed that the situation wasn’t too bad, Beatty sharply pointed out that 24 of 27 insurance CEOs were white men. Rep. Maxine Waters (CA) lectured the insurers that “your response is not very good. You have to do better. All the insurance companies have to do better.” Finally, Rep. Chuy Garcia (IL) called out the insurers for their abysmal record on Latino employees—Latinos make up 8.8% of the insurance workforce and only 3.1% of insurance leaders.

While strong on the problems that insurers have with internal diversity and inclusion, the House subcommittee did not specifically focus on the deep-seated inequities in the insurance marketplace that punish tens of millions of consumers of color who are required to purchase insurance products by the government, lenders, and landlords. Whether through unfair pricing practices that use socioeconomic factors to jack up premiums or built-in biases that disproportionately flag policyholders in Black communities for fraud, insurance tends to cost more and provide less to people of color in America. The only member to mention this was Rep. Rashida Tlaib of Michigan, who gave a powerful speech about how the lack of diversity in insurance companies has harmed consumers. She listed a number of harmful nondriving factors—education level, occupation, credit score, gender, homeownership status, ZIP code/neighborhood—and asked rhetorically, “What do these have to do with being a safe driver?” The Allstate representative responded that she would connect Tlaib with people who could explain this.

The House hearing demonstrated how weak and dishonest insurers’ commitment to diversity and inclusion is. But the subcommittee could and should have gone further by looking more deeply at the way this interacts with the daily injustices consumers face in the market. In comments submitted for the record, Consumer Federation of America emphasized that

Congress must also investigate the inequities and discrimination that plague the insurance industry… we cannot wait and hope that examining diversity and inclusion will change the patterns and outcomes of decades of industry practices and biases. A hearing on diversity and inclusion at large insurance companies is not enough to address the inequities that are a chief target of this subcommittee. Therefore, we urge the subcommittee to follow this D&I hearing with a subsequent hearing on the biases, discrimination, and inequities faced by consumers.

For example, in March 2022 a whistleblower at State Farm, the nation’s largest insurer, told the New York Times that she was witness to discriminatory practices aimed at Black policyholders and claimants that resulted in disproportionately large numbers of claims denials and anti-fraud investigations for Black customers. The whistleblower alleges that the company’s practices were “simply a means of denying payment of millions of dollars to African Americans and other minority policyholders.” Yet the House committee did not discuss this allegation—and it should have.

When auto insurers use socioeconomic factors to underwrite and rate their prospective customers, these factors often serve as proxies for income and race. CFA and other consumer groups have conducted many studies over the years and found overwhelming evidence that these factors consistently lead to higher rates for safe drivers who are also disproportionately people of color and who have lower incomes.

The House hearing was a good beginning. But in order to uncover the true harm caused by the lack of diversity and inclusion in insurance and the high costs paid by consumers as a result, the subcommittee will need to probe deeper.

The post A House Committee Examined Diversity and Inclusion at America’s Largest Insurers. The Results Were Not Pretty. appeared first on Consumer Federation of America.

Nearly everyone in Washington State deals with some type of insurance—drivers are required to purchase auto insurance, banks require homeowners insurance for mortgages, and consumers purchase numerous other products that require insurance. Often, premiums can go up for no apparent reason at all, frustrating policyholders and leaving them in the dark, grasping for information.

The Washington State Office of the Insurance Commissioner wants to counter this. They have drafted a new regulation, R 2022-01, which requires property and casualty insurance companies to provide their customers with a detailed breakdown of premium increases, the factors that affect those increases, and a breakdown of each factor and how much it impacts their premium.

Consider this case: if someone adds a new car to their insurance policy and their premium increases, the insurer has to tell them how much that affects their new premium. If a consumer is convicted of a moving violation and their premium increases, the company has to follow similar procedures. And if someone is widowed and loses their married customer discount, or sees a decline in their credit and their premium goes up, the company has to spell that out for them.

Washington consumers currently spend over $7.5 billion annually on the kinds of insurance that this rule will cover. But the lack of clarity and understandable disclosures means that consumers often have no idea what factors are causing their premiums to go up. Worse, many insurers charge people more based on characteristics that aren’t closely related to risk. And consumers have no idea that these characteristics – their job title, education level, marital status, credit history, and others – can be used for setting initial premiums and then changing premiums from one renewal to the next.

For example, auto insurers, use credit information to discriminate against certain consumers and charge them more. Consumer Federation of America found that on average, Washington consumers with excellent credit and a perfect driving record paid an average annual premium of $468. But consumers with the exact same driving record but fair credit paid an average annual premium of $633–$165 or 35% more. Consumers with poor credit paid an average annual premium of $836–$370 or 79% more.

Plus, some of Washington’s largest auto insurers charge consumers significantly more based on their credit information. Allstate charges consumers with poor credit 89% higher premiums than consumers with excellent credit. Progressive charges consumers with poor credit 108% higher premiums, and State Farm charges consumers with poor credit 185% more. These insurers have an obvious interest in keeping the impact of credit information and other factors hidden from policyholders. If most consumers don’t know about this discrimination, they can’t take steps to counter it and find better deals.

Washington State is saying: Enough! This rule will dramatically improve consumer understanding of the cost drivers impacting their insurance and give them more information. Consumers should know the reasons for auto insurance premium increases and decreases. And if their credit declines, possibly due to circumstances beyond their control, they should know its impact on how much they pay every month. If a consumer’s annual premium increases by $200, $400, $600 or more because of changes in their credit score, they deserve access to that information.

The Office has been receiving comments on this rule for over a month and is currently finishing up a second draft. Consumers have a right to know the reasons for auto insurance premium increases and decreases, and they should get a detailed description of all these characteristics. For the benefit of all Washington State residents, we hope this regulation is adopted soon.

The post Consumers are In the Dark About Reasons for Their Premium Increases, Washington State Is Proposing to Change That appeared first on Consumer Federation of America.

The consumer advocates called on Texas to conduct market conduct examinations of insurers with consumer complaints related to delayed payments, issue a bulletin stating that unfair delaying tactics are wrong and illegal, and place meaningful penalties on insurance companies that engage in this wrongdoing.

A law firm recently published an article saying that delaying claims can be a good strategy for insurers (this article was hurriedly taken down once it started receiving criticism).

The post Consumer Groups Urge Texas Department of Insurance to Investigate Possible Unfair Delaying of Claims by Insurance Companies appeared first on Consumer Federation of America.

To begin with: what exactly is homeowners insurance? It is personal property insurance for homes, condos, apartments, and mobile homes and includes a bunch of protections, which can include the losses occurring to your home, its contents, and the loss of use (additional living expenses, like if you have to stay in a hotel while your home is being repaired). Homeowners are not legally required to have homeowners insurance, but banks and other lenders, as well as the federally backed mortgage companies Fannie Mae and Freddie Mac, require it as a condition for mortgages, so the vast majority of homeowners have this insurance. A number of factors affect how high your homeowners insurance premium is — history of past claims, the neighborhood and its crime rate, how widely available your building materials are, coverage options and the coverage amount you want, the condition of the home, and a consumer’s credit history, among others.

This market, like the housing market itself, is tarnished by a history of unfair and discriminatory practices that directly or indirectly target people based on their race, color, national or ethnic origin, religion, or sex or disability. Practical examples of this discrimination can happen at the individual level, where they include:

· Offering insurance policies with inferior coverage

· Not returning calls or requests for information from consumers interested in getting policies

· Denying coverage completely based on someone’s race.

But this discrimination can also take place on an institutional level. Examples of this include:

· Imposing different terms and conditions based on someone’s neighborhood

· Refusing to write policies for homes in these neighborhoods

· Refusing to underwrite buildings based on age, which often disproportionately impacts mostly Black neighborhoods

· Requiring inspection reports in certain areas but not others

· Fewer/inferior options compared to wealthier neighborhoods, and

· Discouraging applicants in these neighborhoods.

Discrimination in homeowners insurance dates back many years. In the 1930s the newly created Federal Housing Administration, founded to help homeowners by providing federal insurance for mortgages, drew up appraisal maps of neighborhoods and based its underwriting policies on those maps. The FHA limited or refused to provide mortgage insurance for people in neighborhoods deemed risky — and Black neighborhoods, immigrant neighborhoods, and neighborhoods that had people of different races living together were all considered risky.

This discrimination in homeowners insurance continued. In the late 1990s, the housing nonprofit Housing Opportunities Made Equal (HOME) investigated Nationwide’s homeowners insurance policies in and around Richmond, Virginia. HOME found dramatic evidence of racist discrimination and excessive prices, and sued Nationwide for unfair discrimination.

What forms did Nationwide’s discrimination take? The company did the following:

· Nationwide used racial profiling to identify “target markets” that were white and excluded Black consumers

· Nationwide labelled every ZIP code in Richmond with lots of Black residents undesirable and withdrew most of its agents from those areas

· Nationwide actively discouraged agents from selling in Black neighborhoods, and limited its hiring efforts to draw from mostly white neighborhoods

· Nationwide denied insurance to owners of insurable homes in Black neighborhoods, and

· Nationwide used actuarially unsound underwriting criteria that excluded older homes (most of the homes in urban, black neighborhoods).

When all these facts came out, an appalled jury required Nationwide to pay $100 million in damages, although this later got struck down by the Virginia Supreme Court. Eventually Nationwide agreed to pay a settlement of $17.5 million.

Another example of unfair discrimination in auto insurance is when insurers more frequently deny claims made by Black homeowners, or assume that their claims are more likely fraudulent. Recently the insurance giant State Farm has been accused of using fraud as a pretext to deny the insurance claims of Black consumers and is facing multiple lawsuits. In one case, Dr. Carla Campbell-Jackson, a Black woman who worked for State Farm for twenty eight years, recounted how senior executives pressured investigators to investigate and deny as many claims from inner city neighborhoods as possible. When she tried to fix this, she was fired.

And there is another contributing factor to discrimination in homeowners insurance: someone’s credit history. A recent study by Bankrate found that people with poor credit pay on over 77% more on average for homeowners insurance than people with excellent credit ($2,180 annually vs. $1,232 annually). Most states allow insurers to charge homeowners more based on credit history; only California, Maryland, and Massachusetts ban this.

The impacts of unfair discrimination in homeowners insurance are substantial. Consumers wind up paying higher premiums, and if they are denied insurance coverage, they can’t get the mortgage to buy a home in the first place. Since homeownership is one of the biggest avenues to wealth accumulation and intergenerational mobility in America, this perpetuates racial inequality and the wealth gap. If unfair pricing leads an insured homeowner to miss a payment and have coverage canceled on them, then their mortgage company will “force place” insurance on the property that protects only the lender. The lender will add the (high) cost of that force-placed coverage onto the homeowner’s mortgage payments. Additionally, insurers undervalue Black homes and often pay often fewer and less generous claims. And neighborhoods are affected as well; expensive insurance policies can burden homeowners and contribute to foreclosures, which can cause neighborhoods to deteriorate.

How can we stop racism in homeowners insurance? Here are several reforms that consumers should advocate for:

1. State Insurance Departments should launch in-depth investigations of insurers if they hear complaints from homeowners.
2. They should test premiums of various homeowners insurance policies in areas around their states, to get a better picture of the market and identify correlations between premiums and demographic make-up of communities. They should also use secret shopper tests to determine if applicants of color and white applicants are provided different company and coverage options or otherwise face different treatment.
3. Departments should aggressively prosecute and punish company lawbreaking — fines should be substantial enough to deter repeat offenses and not just be a cost of doing business.
4. States should ban the use of socioeconomic factors in insurance pricing, such as credit history.
5. Companies should be required to demonstrate that the models they use in each segment of their business — marketing, underwriting, pricing, claims handling, and fraud fighting — do not have built in biases or disparate impacts.

These same concerns, of course, apply to renters and mobile or manufactured home insurance as well. It is critically important that everyone living in the country can access the insurance market in order to protect their home free from the systemic bias and racial and ethnic discrimination that has plagued America’s housing markets for generations.

The post How Racial Discrimination in Homeowners Insurance Contributes to Systemic Racism and Redlining appeared first on Consumer Federation of America.

“Bob built the consumer advocacy presence in the American insurance industry from scratch, and anyone who has purchased insurance owes him tremendous gratitude,” said Jack Gillis, CFA’s Executive Director. “By virtue of the problems he exposed, the reforms he spurred, and the changes to industry practices that came from his work, we calculate that his research and advocacy have saved American consumers hundreds of billions of dollars.”

“Continuing in the advocacy tradition of Bob Hunter, I’m thrilled to announce that CFA’s Insurance Advocate, Doug Heller, will take on the role of Director of Insurance,” added Gillis.

The Remarkable Career of J. Robert “Bob” Hunter

After 10 years as an insurance actuary in the private sector, Hunter was hired by the United States Department of Housing and Urban Development (HUD) in 1971 as the Chief Actuary of the Federal Insurance Administration, an agency he would lead under Presidents Gerald Ford and Jimmy Carter. His work was instrumental in achieving the flood insurance program’s early goals, creating the Liability Risk Retention Act, and making insurance available in the inner cities through the implementation of the Riot Reinsurance Program and the Federal Crime Insurance Program.  He received the Award for Excellent Service from the Secretary of HUD. Hunter was later appointed by Governor Ann Richards to serve as Texas Insurance Commissioner.

As Hunter recalls, “When I got my first paycheck, it said ‘The people of the United States Pay to: J. Robert Hunter…’ When I read that, it was a deeply moving, life-changing moment. I thought to myself, ‘now I have to think about insurance from the people’s perspective.’”

In 1980, with financial support and encouragement from Ralph Nader, Hunter founded and led the National Insurance Consumer Organization, a nonprofit insurance consumer advocacy organization, for 13 years prior to joining CFA in 1995 as Director of Insurance. He viewed his role as his contribution to improving society and therefore never sought any compensation for his 40 years of work with NICO and Consumer Federation of America.

During his career, Hunter won several significant legislative and regulatory reforms of the insurance industry and led the way to changes in the way the industry operates; the trade magazine National Underwriter named him among the “25 Living Legends of Insurance.”

• In the 1980s he successfully pushed for a significant change to insurance ratemaking – getting insurers to include their projected investment income in ratemaking – saving policyholders an estimated $500 billion since that time.
• In one twelve-month period, Hunter testified in every state in the Union to combat the industry’s effort to use the macro-economic insurance cycle as an excuse to spike rates and diminish consumer legal rights.
• In 1986, under contract with the California Legislature, he wrote a seminal paper on California’s insurance market, which served as the basis for 1988’s historic “Voter Revolt” that enacted Proposition 103. The nation’s strongest insurance consumer protection law, CFA calculates that Prop 103 has saved California drivers alone over $150 billion since enactment.
• When Hurricane Andrew devastated Florida in 1992, he proposed the moratorium on cancellations and rate hikes and a series of other reforms the state adopted to protect policyholders in the storm’s wake.
• Hunter helped uncover and reform abusive claims handling practices associated with the Colossus computer software program used to calculate the amount the insurer would offer for car crash injury claims.
• He uncovered, in the early 2010s, the practice of price optimization, where insurers charge certain customers higher premiums based on their shopping habits, particularly harming the most loyal customers. His work spurred action against the practice in twenty states and at the National Association of Insurance Commissioners (NAIC).

Over his career, Hunter has been at the forefront of efforts to eliminate unfair and discriminatory pricing in the insurance markets, especially where those practices punish lower-income consumers. During the pandemic he has continued his fight for consumers, with calls for insurance refunds to auto insurance customers as companies reaped windfall profits while Americans were stuck at home.

Hunter also encouraged other consumer advocates to focus on insurance consumer protections, creating connections and campaigns that have expanded the reach of many of the reforms Hunter first developed. Among those advocates are Harvey Rosenfield, author of California’s Prop 103, Birny Birnbaum of The Center for Economic Justice, Amy Bach of United Policyholders, Joanne Doroshow of The Center for Justice & Democracy, and Doug Heller of Consumer Federation of America.

“Bob has been an unrelenting advocate for four decades, whose work has dramatically changed the way insurance in America is priced and how claims are paid,” said Doug Heller, who has worked with Hunter at CFA since 2013. “For the past forty years, the insurance industry has always had to ask themselves ‘what’s Bob going to say?’ whenever a consumer issue was on the table. It is impossible to quantify fully the impact Bob Hunter has had on the insurance market, its regulation, and its public policy. We are deeply grateful for his work and thankful that he will continue to provide his insights and expertise even in his retirement.”

Contact: Doug Heller, 310-480-4170

The post J. Robert “Bob” Hunter to Retire After 27 Years as CFA’s Director of Insurance appeared first on Consumer Federation of America.

CFA believes that Hurricane Ida will produce about $19 billion in insured losses, split between private insurers for the wind damage and the federal government’s National Flood Insurance Program (NFIP) for flood damage. CFA estimates that private insurers will face over 180,000 claims for wind damage by homeowners with insurance payments for wind damage exceeding $12 billion. The NFIP (and a few private insurers of flood insurance) will, in CFA’s estimate, handle as many as 100,000 flood claims for over $7 billion, given the severity of the storm surge and the rainfall totals.  The flood estimates could vary widely depending on how much rainfall ultimately occurs as the storm’s final bands pass through impacted areas, what the ultimate height of flood stages in the rivers will be, and the percentage of homes in those hard-hit areas that have flood insurance.

J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner and Federal Insurance Administrator (who ran the National Flood Insurance Program) said, “Our thoughts and prayers go out to the wonderful people of Louisiana, where I was born, Mississippi, Tennessee and other states who face the aftermath of this huge storm.

“Fortunately, Louisiana has one of the highest percentages of residents who carry flood insurance in the nation so most people who had flood damage from this storm in Louisiana will be covered by flood insurance.  Almost all wind-damaged homes have homeowners policies covering wind but insurers have been steadily increasing hurricane wind coverage deductibles and imposing other, sometimes draconian, homeowners insurance policy limitations. This shift of costs to consumers under homeowners insurance policies may take some by surprise, since disclosures of coverage changes are often buried in renewal paperwork that consumers may not understand or even read. Because so many consumers in Louisiana experienced severe claims problems in the wake of Hurricanes Katrina, we urge homeowners dealing with losses caused by Hurricane Ida to be vigilant with their insurance companies, including the insurers settling National Flood Insurance claims, to ensure that that they receive a full and fair settlement.”

 Tips for Consumers Filing Claims: How to Get All You Are Entitled to from your Insurance Company

As consumers prepare to contact their insurance companies in the wake of the storm, CFA offered the following five-part guide regarding the filing of a claim.

 Part 1. Initiating Your Claim

1. You have paid your premium and are entitled to coverage. If you have a legitimate claim, do not hesitate to file it.  Insurers should not raise your rate for filing this claim or fail to renew your policy for filing it. Report your claim as promptly as possible as insurance companies generally handle them first come, first serve.
2. Once your claim is reported, be sure to get your claim number and write it down. Insurance company claims departments can locate your file most promptly using your claim number.
3. Maintain receipts for any expenditures related to immediate repairs you had to make to secure your home or any living expenses (hotel, meals) if you could not return to your home in the wake of the storm. In wind claims you should get reimbursed for such additional living expenses.  If your claim is limited to flood insurance, additional living expenses are not covered. If your home was impacted by both wind and flood, you may be entitled to living expenses from your homeowners insurer, depending upon your policy language (see discussion of “anti-concurrent causation clauses” below).
4. When the insurance company sends out an adjuster to survey your damage, ask if he/she is an employee of the insurance company or an independent adjuster (I.A.) hired by them. If an independent adjuster, ask if they are authorized to make claim decisions and payments on behalf of your insurance company and ask for the name of the in-house company adjuster to whom the I.A. is sending your information. As you begin the claim process, if you are able, obtain a repair estimate from a trusted local contractor to use as a guide in talking with the adjuster.
5. Many insurance companies have repair programs in which they offer to send out one of their approved contractors to estimate your property damage. You may wish to obtain an estimate from their contractor, but you are not under any obligation to use them. The insurance company may encourage their use, as it is to their advantage. Contractors that participate in these programs have likely agreed to unit repair costs dictated by the insurance company or one of their vendors. The unit repair costs are provided to insurance companies by software vendors and are averages by geographic region and may or may not fully compensate you for your damages. It is very important to remember that your claim is unique and should always be treated as such by your insurance company.
6. Beware of fly-by-night contractors who might approach you to repair your home. Make sure the contractor has good references and is insured in case of errors in construction or a worker is injured on your property.  Check with the Better Business Bureau near you or with your insurance company if you are not sure about the qualifications of a contractor.

“Not all insurance companies handle claims badly, so go into the claims process with an open mind,” said Hunter. “Be vigilant, though, and be ready to stand up for yourself and your family, or you run the real risk of being shortchanged.”

 Part 2: Keeping Good Records During the Claims Process

When you file a claim, you should immediately start a notebook documenting contacts with your insurance company. List the date, time and a brief description of every exchange. If you need to complain later, this information will be vital (see below). If an adjuster says he or she will come and does not, write it down. If an adjuster is rude, write it down.  If the adjuster is pleasant and efficient, write that down too.

Make as thorough a list of your possessions as you can. Use pictures of your possessions taken before the storm and keep them in a safe place.  If you later realize you have no pictures when you file a claim, don’t forget that family or friends may have pictures of rooms in your house (for example, from Christmas or other celebrations) that can be helpful in recreating a list of your belongings.

You may wish to take your own photos of the damage as part of your documentation, if you can do so safely. Do not climb on the roof. Leave that to the professionals. The adjuster should still take their own damage photos.

As noted above, you may be entitled to money up-front for living expenses, such as hotel costs and meals, if your home becomes uninhabitable as a result of wind damage. Keep receipts from emergency repairs as well as any costs you incur in temporary housing. These costs may be reimbursable under the “Additional Living Expense” portion of your homeowners policy. Insurers are usually very good about these initial payments, particularly while the media is focused on the hurricane aftermath. Most claims problems, if they arise, come later, when bigger payments are sought.

 Part 3. What if the Claim is Denied or the Offer is Too Low?

If the claim is denied or you feel the offer is too low, demand that the company identify the language in your homeowners policy that served as the basis for denying your claim or offering so little. This approach has several benefits:

• The company may be right and you may not know it. Once they pinpoint the appropriate language in the policy, you should be able to make this determination. For example, you may have $900 in damage, but the company could well point out that you have agreed to a $1,000 deductible or an even higher wind deductible—usually between 2 percent and 5 percent, but sometimes as high as 10 percent, of your home’s replacement value.
• The company may have slipped new limitations into the policy and not adequately informed you.  If you feel that you have been misled in this regard, it might be a good idea to consult an attorney. The introduction of percentage deductibles (up to 10 percent of the value of a home) will shift much of the cost of Hurricane Ida from insurance companies to insurance consumers, as compared to many earlier storms. The practice of shifting the cost of previously insured events back to consumers may be acceptable, but only if consumers are clearly given the option to select the level of coverage they want with fully informed consent.
• Another restriction new to many policies is a limit on replacement cost payments, which might come into play in the event that a home is totally destroyed. A typical cap is 20 percent above the face value of the policy (some companies cap at no increase over the face value of the policy). If costs surge because of the spike in demand for materials or labor from a major storm like Hurricane Ida (or if your state does not monitor price gouging sufficiently) this limit might apply. For example, if a home would cost $200,000 to replace and that amount was the limit on the policy, the insurance company would pay no more than 20 percent more, or $240,000. If the surge in construction costs due to extreme demand caused the price of replacing the home to jump to $300,000, the homeowner would be short $60,000.
• Another new limit on policy coverage that might surprise you is many insurers no longer cover the cost of additional costs to bring a damaged home up to new building codes (wiring, elevation for flood risk, etc.)
• Many insurers use an “anti-concurrent-causation” clause in their policies that, insurers allege, removes coverage for wind damage if a flood happens at about the same time, which could be a serious problem in claims from Hurricane Ida.  CFA believes that these clauses are often ambiguous, so if an insurer uses such a clause to deny your wind claim or to offer a very inadequate payment, read the provision carefully to see if you think it is ambiguous and, if so, see an attorney right away.
• Before settling a claim, it is important to request a copy of the initialrepair estimate written by either the company adjuster or I.A. Most of the adjusters are using the Xactimate estimating software. A problem we have discovered is that many insurers have a “review process” in place where they either have a vendor or an in-house review of the Xactimate estimate that was written on-site and cut that estimate (substantially in many instances). The insured is then only provided with the final estimate and is not aware that it has been cut. This is happening even in situations such as hurricanes as has been uncovered in several recent lawsuits.
• Once the insurance company tells you the reasons for its action, it cannot produce new reasons for denying payment or making a low offer at a later time. You have locked them in—an important protection for the consumer.
• If you review the policy and find that, under a reasonable reading, you think you are entitled to the full amount of your claim as you read the language they relied upon, you will likely win if you go to court. Courts consistently rule that if an insurance policy is ambiguous, the reasonable expectation of the insured party will prevail since the consumer played no part in writing the language of the insurance policy.

Part 4. How/Where do I Complain if I Have Trouble on a Wind Claim?

If you feel that the offer is too low or the claim denial is wrong, the best process for getting your complaint resolved is as follows:

• Complain to more senior staff in the insurance company.  It is often best to complain to an executive in consumer relations (who is paid to keep consumers happy) rather than an executive in the claims department (who is paid to keep claims costs low). Use the records you have kept since the claim process began. The more serious the insurance company sees that you are in documenting how you were treated, the more likely they will make a more reasonable offer.
• Complain to your state insurance department. All states will at least seek a response to your complaint from your insurance company, which will give you more information as you consider next steps if you are not satisfied with the response. A few states may actually intervene on your behalf with the insurance company in clear cases of bad claims handling. It is important to dispassionately present your side of the story when you complain, using the notes you have been taking.

The Louisiana Insurance Commissioner is:
James J. Donelon
Louisiana Department of Insurance
225-342-5900; 800-259-5300
702 N 3rd Street
Baton Rouge, Louisiana 70802
File a complaint: https://www.ldi.la.gov/onlineservices/ConsumerComplaintForm

The Mississippi Insurance Commissioner is:
Mike Chaney
mike.chaney@mid.ms.gov
Mississippi Insurance Department
601-359-3569; 800-562-2957
1001 Woolfolk State Office Building 501 N. West Street
Jackson, Mississippi 39201
File a complaint: http://www.mid.ms.gov/consumers/online-complaint.aspx

• See a lawyer. Now the notes you took are even more vital. In addition to an award covering your claim, if your treatment was particularly bad, the courts in many states will allow additional compensation when the insurance company acted in “bad faith.”  Since insurance companies take your money in exchange for their promise to make you whole when disaster strikes, they must act in utmost good faith in performing that obligation.
• Take note of what isn’t covered in a homeowners policy. Homeowners policies do not cover flood, earthquake, tree removal (except when the tree damages the house) or food spoilage from power failures. Flood damage will be covered by your flood insurance policy.

Part 5. Dealing with Flood Claims

The federal government underwrites flood insurance coverage, although insurance companies (known as “Write Your Own” companies) are contracted with the government to service claims. Follow the same procedures as above, except direct complaints to the Federal Emergency Management Agency, the government agency responsible for running the federal flood insurance program (1-800-427-4661, TDD# 1-800-427-5593). The FEMA flood insurance program tips on handling claims are located at https://www.youtube.com/watch?v=OeaI973gFjo.  This page contains a video that shows you the basics of how to prepare your claim your claim and how to appeal if you are unsatisfied.

The FEMA claims manual explains, in detail, the claims process.  Key points are:

• Notice of loss to the flood insurer so an adjuster can be assigned to your claim.
• The adjuster estimates the claim and you and the adjuster file a proof of loss form with the insurer withing 60 days of the loss.
• You have the right to amend this proof of loss.
• As explained above under wind claims, it is important to ask for the initial repair estimate to make sure it has not been shaved down by the insurer prior to presentation to you.
• A payment will be made. If you are satisfied the process ends.  If you are not you can dispute the claim.
• The dispute process can be as simple as working with the adjuster to settle the claim. If you can’t agree you can seek to have the adjuster’s supervisor review the claim.  If that does not succeed, the next step is to ask the insurer to review the claim by submitting a new proof of loss detailing the disputed amount.
• If you still disagree you may file an appeal with FEMA, within 60 days of the insurer’s denial letter. FEMA requires this in writing.  You may have a third party discuss this with FEMA.  Be careful during this process because appeal does not extend the time to file suit, one year statute of limitations (from the insurer’s first denial letter) to filing suit.
• Exercise your legal rights. Find an attorney who will represent you in a lawsuit in the United States District Court where the damaged property is located.

Since the National Flood Insurance Program (NFIP) is paid for by taxpayers, and often the same insurance company will handle the claim for both the wind and the flood damage, it is very important that consumers verify that insurers do not attribute an unjustifiably large portion of the losses they experience to flood damage.  Consumers must be the first line of defense against insurers shifting costs for wind losses to the NFIP and thus to taxpayers, something of significant concern in Hurricane Ida given the large number of residents who will likely need to file both wind and flood claims.  If you see such potential abuse by insurers, contact your U.S. Representative and Senators so that they can make sure that taxpayers are protected.  CFA research has found that some of the private insurance companies that settle flood claims have corporate cultures that are biased toward settling claims low, even when the payments will be paid by NFIP/taxpayers and not the insurance company.  In Superstorm Sandy, for example, this tendency led to woefully inadequate settlement offers and outrage among flood insurance policyholders.

“Flood insurance claims after both Katrina and Sandy were handled very badly,” said Hunter.  “This sad history should not deter you from seeking fair compensation for losses caused by Hurricane Ida.”  Indeed, Hunter indicated, insurers face greater scrutiny by state regulators and FEMA because of the serious claims problems that occurred after Hurricane Katrina and Superstorm Sandy.  FEMA has been under extreme pressure from Congress to continue getting better at watching the performance of their insurance company contractors to do a better and fairer job in settling flood insurance claims.  There seems to be significant improvement recently but you still must be vigilant when handling your flood claim.

Preventing Insurers from Using Hurricane Ida as an Excuse to Raise Homeowners Insurance Rates, Limit Coverage 

After Hurricane Katrina and other large storms, insurers pulled back from offering homeowners coverage along the coasts, dumping people into higher priced, state-run insurance pools. They also cut coverage and raised rates substantially.

CFA is calling on state regulators not only to closely monitor insurers to prevent claims abuses but to stop insurers from moving to increase home insurance rates and cut back on the coverage they offer after Hurricane Ida claims are paid. There is no reason, actuarially, for insurers to raise rates or cut back coverage in homeowners insurance policies due to Hurricane Ida, which is a windstorm well within the computer-modeled projections underlying insurers’ current rate schedules (the windstorm was probably no more than a one in 100-year event.)

Consumers must also act to protect themselves.  To do this, consumers must stand together and agree not to buy auto insurance, home insurance, or other coverage from any insurance company that refuses to renew homeowners insurance policies with consumers who make claims related to Hurricane Ida. Consumers stood together after Hurricane Andrew, persuading Florida to pass a moratorium on the non-renewal of policies and to look carefully at companies’ post-disaster rate increase applications. Consumers should fight any attempt to use hurricane claims as an excuse not to renew homeowners policies or sharply raise home insurance rates and should complain to state regulators if insurers do take such actions.

 State Insurance Departments Should Create Web Sites Tracking Insurer Progress in Settling Hurricane Ida Claims

“The insurance departments in the states with serious damage should establish a web page with information on how each insurer is doing at closing claims from Hurricane Ida,” said Hunter.  It should show the number of claims filed, the number partially paid, the number fully paid, the number closed with no payment, and how long it takes each insurer to resolve the average claim settled since the storm.  A model for such a system could be the monthly analysis of claims payment progress used by the New York Department of Financial Services in the aftermath of Superstorm Sandy.

“Americans always pull together to protect one another whenever there is a disaster like this, but when it comes to rebuilding homes long after the storm has passed, too many people find themselves in lonely battles with insurance companies. We all will have to keep a spotlight on the communities hit by Ida to make sure that survivors don’t face a second disaster in the shape of unfair practices by their insurance companies,” said Hunter.

Additional Resources:  United Policyholders-2021 Hurricane Ida—Insurance Claim and Recovery

Contacts:
J. Robert Hunter, 207-864-2559
Mark Romano, Claims Expert, 469-381-5220
Douglas Heller, 310-480-4170

The post What Consumers Should Do to Get Fair Claims Payments in the Wake of Hurricane Ida appeared first on Consumer Federation of America.

For decades, insurance rates for personal auto, homeowners, renters, and other insurance coverages have been made by actuaries guided by a simple principle: rates charged to people must reflect the costs related to the risk being insured. Nothing else was to be added that would move the rate away from the cost of the risk. This principle was enshrined in the Statement of Principles (“SOP”) Regarding Property and Casualty Insurance Ratemaking, which was adopted by the CAS in May 1988.

Since 2013 some insurers have sought to amend or remove these principles in order to, among other unfair practices, allow the use of “price optimization” algorithms that raise premiums above the cost of the risk for those who do not shop around. But setting rates in this manner would violate the SOP and state laws for which the SOP has provided context and clarity. Without notice, on December 22, 2020, the CAS announced that its Board of Directors had unilaterally, without any of the usual public comment, rescinded the SOP.  This shocked and infuriated many members of CAS and state insurance regulators.

“At the behest of insurance companies, and without engaging regulators or other actuaries, the Casualty Actuarial Society Board unilaterally tossed out the Principles that prevent insurance companies from charging excessive prices or unfairly discriminating against certain customers.” said CFA Insurance Director J. Robert Hunter, who is an actuary, a member of CAS for more than 50 years, and the former Texas Insurance Commissioner.  “It is urgent that states act now to adopt the rescinded Principles themselves and instruct insurers to continue to follow them in making insurance rates.”

In response to the CAS decision to rescind, the Casualty Actuarial and Statistical Task Force (CASTF), the actuarial group in the National Association of Insurance Commissioners (NAIC) asked CAS to reverse the rescission stating that the “Statement of Principles regarding Property and Casualty Insurance Ratemaking is too important of a document and too widely cited and relied upon to be rescinded at this time in that there is no document as concise and accessible as the Ratemaking SOP that so clearly and completely ties rates to risk.”

CAS summarily rejected the CASTF request to reverse the rescission.

This leaves no actuarial standards at all that apply to the final rates people pay for insurance coverage, a dangerous situation for regulators and consumers. While the elimination of the actuarial trade association’s Principles, does not change state laws, it is sure to lead some insurers to try to exploit the sudden lack of professional guidance on insurance rates people pay.

To remedy this, CFA has asked state insurance regulators to continue to recognize the validity and relevance of the rescinded Principles for ensuring that insurance rates are not excessive, inadequate, or unfairly discriminatory.  To accomplish this goal, CFA submitted a draft Bulletin for each state to adopt instructing insurers to certify that rate filings they submit reflect the now-rescinded Principles.  CFA is also petitioning the NAIC to take steps to ensure that, across the nation, states continue to rely upon the rescinded CAS principles in their regulatory processes.

“The impression that the Principles are no longer viewed as valid by the actuarial profession is in error and is especially troubling in an environment in which new algorithms and certain rating characteristics being used by insurers are being challenged for their biases and perceived lack of relationship to risk. Studies have shown that these new factors and algorithms particularly harm low-income people and communities of color,” said Hunter.  “Since the rescission opens the door to attacks on each state’s consumer protection and rating laws by insurers seeking to overcharge vulnerable insurance consumers, the states must promptly step in to ensure that insurance companies abide by these fundamental principles of ratemaking that the CAS was too weak to defend.”

Read the letter here.

Contact: J. Robert Hunter, 703-528-0062

The post Protections Against Unfair and Excessive Auto and Home Insurance Rates Weakened by Actuarial Group Action: States Urged to Fill the Gap Now appeared first on Consumer Federation of America.

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“As the Texas Department of Insurance’s chief executive and administrative officer, the Commissioner is in charge of protecting and ensuring the fair treatment of consumers, and ensuring fair competition and competitive markets in the insurance industry,” said Ware Wendell, Executive Director of Texas Watch. “We need the Texas Department of Insurance to step up and help consumers. The Governor should choose someone who puts consumers first.”

Currently Texas consumers are struggling and dealing with significant economic hardship. The COVID-19 pandemic and its effects have thrown millions of Americans out of work, closed businesses and venues, and killed over 195,000 Americans while infecting millions. During this crisis consumers need protection against unscrupulous insurance companies more than ever. For example, consumers are driving far less due to the pandemic and closures, and yet they are paying excessive auto insurance rates based on pre-pandemic conditions. While many auto insurers have provided relief in the form of premium refunds, they are inadequate compared to the massive profits that insurers have recently earned.

In late August the current Commissioner Kent Sullivan said that he would resign his position in September and return to the private sector. For years the Department has been criticized by consumer advocates for failing to take effectively help consumers.

“Texas needs a leader who will put consumer well-being first by standing up for consumer rights and taking a tough stance against insurers who violate them, and who will quickly respond to the COVID-19 pandemic and its impact,” said Bay Scoggin, Director of TexPIRG. “They should not hesitate to change policies when they need to, and make sure that insurance is affordable for all Texans. Insurance companies have gotten away with excessive rates for too long, and the new Commissioner should be unafraid to challenge those rates and make sure that markets are competitive.”

The consumer groups also provided a short list of three possible candidates: Doug Slape (Chief Deputy Commissioner of the Texas Department of Insurance), Melissa Hamilton (Public Counsel at the Texas Office of Public Insurance Counsel), and Birny Birnbaum (a national advocate and expert on insurance and consumer protection and former Chief Economist at the Texas Department of Insurance).

The post Consumer Groups Call on Texas Governor Greg Abbott to Appoint a Strong Insurance Commissioner Who Will Protect Consumers appeared first on Consumer Federation of America.

The post Groups Urge Texas Governor Greg Abbot to Choose a New Insurance Commissioner Who Will Stand Up for Consumers appeared first on Consumer Federation of America.

“I have no doubt that this provision of AB 2167 will drive up the average cost of insurance in California by hundreds of dollars per home and subject the state’s homeowners insurance market to additional spikes in price and non-renewals as it becomes tethered to unregulated and erratic global reinsurance markets,” Hunter, a Fellow in the Casualty Actuarial Society, wrote.  “In my actuarial opinion, just the provision … allowing unregulated reinsurance charges to be passed through to California consumers will immediately cause rates to rise by 40%… But not only will rates immediately jump across the board, this change will expose all California homeowners to periodic reinsurance-driven spikes in premiums of 50% or more and spates of non-renewals … [following] a major catastrophe in California or one outside of the state, like a series of hurricanes, or a tsunami on the other side of the world, or even a terrorist attack.”

The letter explains that current California law, which prevents the pass-through of reinsurance costs – the coverage insurance companies purchase to insulate themselves from some large losses – has protected consumers from much higher premiums faced in other large states such as Florida and Texas and other wildfire-prone states like Colorado. While insurers in California do purchase reinsurance, the premiums charged to customers reflect the actuarial rate the companies need to provide coverage without adding in the extra costs if companies decide to off-load some of their exposure to reinsurers.

“Nothing in California law stops insurance companies from buying reinsurance to reduce their losses,” Hunter explained. “The current rules allow sufficient dollars for insurers to purchase reasonably priced reinsurance. Current protections simply prevent insurance companies from jacking up rates on homeowners to cover excessive costs in the unregulated global reinsurance market.”

Hunter also highlights industry data showing that California has long provided a better than average profit environment for homeowners insurance companies, even after accounting for the disastrous wildfire seasons of 2017 and 2018: 8.3% average annual return on net worth in California vs. 5.5% return countrywide.  He notes that once insurers receive the billions of dollars of subrogation payments from PG&E stemming from the utility’s settlement with insurance companies over wildfire liability, the industry data will be revised to further increase companies’ profit margins in California.

In Florida, after two bad hurricane seasons in 2004 and 2005, Hunter helped the state craft a response to exorbitant premium increases and non-renewals. Central to the problem was that insurance companies were including their reinsurance costs in customer premiums. The key reform the state adopted, which saved Floridians billions of dollars at the time, was limiting the amount of reinsurance that could be foisted upon homeowners. But, as Hunter wrote, “[t]he legislation under consideration in California would do precisely the opposite and allow insurers to include in customer premiums the same unregulated costs that devastated Florida after it and neighboring states faced consecutive years of hurricane catastrophes.”

In his letter, Hunter points out that while Californians on average pay much less for home insurance than the national average, there are many in wildfire prone areas facing extremely high premiums. In order to address that, energy and resources should be focused on reducing the threat of wildfires and hardening homes to mitigate the risk, but the industry legislation ignores that basic principle.

Hunter said: “Put differently, the legislation would increase profits for insurers without protecting homes from wildfire losses, because the bill does not address the real issue: exposure to wildfire risk. In that regard, California homeowners would be well-served by loss prevention investments and assurances that mitigation will yield the premium relief that should come with risk reduction.  But allowing insurers to add unregulated reinsurance premiums into rates would neither lower rates, increase access, or reduce risk in the state; indeed, it would do exactly the opposite.”

Contacts:

Doug Heller, 310-480-4170

J. Robert Hunter, 703-528-0062

The post California Homeowners Insurance Legislation Will Raise Premiums By 40% across the State appeared first on Consumer Federation of America.

On Wednesday, the House Financial Services Subcommittee on Housing, Community Development, and Insurance and the Subcommittee on National Security, International Development, and Monetary Policy will hold a hearing on the question of reauthorizing TRIA.

“We believe the program is no longer needed, and this public subsidy of the overcapitalized insurance industry should be wound down,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner and Federal Insurance Commissioner. “If Congress wants to extend TRIA, it should no longer be as a corporate welfare program, instead, it should require insurance companies to pay a fair, actuarially sound premium for any federal backup of private coverages that Congress authorizes.”

By the end of 2018, the surplus of the property/casualty insurance industry (the amount of money backing up the business the insurers write) was $742 billion, according to data released by the Insurance Services Office and American Property Casualty Insurance Association. That surplus rose to $780 billion by the end of the first quarter of 2019, according to industry reports. Prior to the 9/11 attacks, the industry’s surplus was $326 billion, or only 44 percent of the 2018 surplus. TRIA was not, of course, in effect at the time of 9/11 and the industry survived that large claim in 2001 without much difficulty.

In its letter, CFA wrote,

The [2018] industry surplus of $742 billion dwarfs the $21 billion of [after-tax] insurer losses from 9/11. In 2019 dollars, the amount a 9/11 event would cost insurers would be $30.6 billion [after taxes].  Even in the extremely unlikely event of a claim or series of claims totaling three times larger than 9/11, the industry is financially positioned to handle the losses. Under the current rules of TRIA, we estimate that insurers would be responsible for about $85 billion of losses before the federal reinsurance kicked in. Without TRIA, the industry would be responsible for an additional $7 billion, the full $92 billion of such an extraordinary event or series of events. That is well within the capacity of the insurance industry without any need for a federal bailout.

The key measure of the safety and soundness of the property/casualty industry is its ratio of net written premiums to policyholder surplus. In recent years, because of the increase in weather-related catastrophic events and fear of terrorism, the ratio considered to be safe by experts has been lowered from 2.00 to 1.50. However, at the end of last year, the industry’s ratio stood at an extremely safe level only 0.82. The after-tax effects of $85 billion of industry losses from a terrorist event equivalent to three 9/11s would only increase this ratio to a still extremely safe level of 0.93. If TRIA expired, the ratio, after paying $92 billion claims from three 9/11 size events would be a mere, and still overcapitalized, 0.94. Indeed, the industry could sustain a series of claims 10 times the size of 9/11 and still maintain a safe premium to surplus ratio of 1.40.

In addition to calling on Congress to end the TRIA program, CFA offered two alternative proposals that would protect taxpayers while also recognizing the potential for a catastrophic series of acts of terror. One proposal is to eliminate TRIA and replace it with a mechanism in FEMA designed to react to the details of any such extreme event and provide taxpayer funded coverage for an act of terror only if and after the industry surplus is diminished by 30%. A second alternative is to renew TRIA’s backstop for insurance companies but require companies to pay an actuarial sound premium for the reinsurance provided by American taxpayers.

“It is not surprising that insurance giants want to keep a free reinsurance program and further expand their profits, but at a time of record-breaking federal budget deficits and all-time high insurer surpluses, we question the wisdom of providing multi-billion dollar subsides to an industry that can easily afford to insure several terrorist events even larger than 9/11,” wrote CFA.  “If there are instances where it has been difficult to obtain insurance coverage, the Federal Insurance Office should work with appropriate state insurance departments to examine and efficiently mitigate these deficiencies.”

CFA concluded that “the December 31, 2020 expiration of TRIA allows ample time to craft a more taxpayer- and public-interest approach to terrorism insurance than merely extending this massive giveaway to an industry that is flush with surplus.”

Contacts:

J. Robert Hunter, 703-528-0062

Doug Heller, 310-480-4170

The post Huge Insurance Industry Surplus Eliminates Need for Renewal of Taxpayer-Backed Terrorism Insurance Program Originally Created As Temporary Response to 9/11 appeared first on Consumer Federation of America.