November 12, 2024
Source: Jacobin
NCDOT Communications, Creative Commons 2.0
Though the full extent of the havoc wrought by Hurricanes Helene and Milton is still being assessed, by now we’re all clear on one thing: home insurance markets are in crisis, with devastating consequences for people across the United States.
While Helene and Milton have thrown the chaos of home insurance into stark relief, this is not a new issue. Insurance companies have been cutting coverage, refusing to renew policies, and departing from certain regions and even whole states. This has left homeowners, multifamily housing providers, and renters exposed to possible financial ruin. More broadly, it leaves property markets vulnerable to collapse, with implications for the entire financial system. It has also strained public coffers as these yawning insurance gaps mean state and federal disaster response programs are expected to foot the bill after the fact.
Unfortunately, media and policy conversations have mostly focused on rescuing the insurance industry instead of exploring the root causes of housing instability in a country increasingly vulnerable to climate disasters. So we at Climate and Community Institute decided to dig below the surface and investigate how insurance price increases, climate risk, and socioeconomic factors overlap across the country. We also interrogated whether the media and policy solutions on offer are the best approach to ensuring safe, affordable housing. Building on those findings, we designed policy ideas that can ensure protections for homeowners and renters and meet the moment with concrete risk reduction solutions.
Our analysis showed that the US home insurance system is fatally flawed, relying too heavily on private markets to manage household disaster risk. As our final report documents, insurance providers are disappearing for single-family homeowners while multifamily housing providers face vanishing coverage options. These and other market failures are creating widening protection gaps that leave the most vulnerable families exposed to disaster losses while worsening the housing affordability crisis.
The industry’s profit-driven model only compounds the problem. Rather than reducing underlying risks, the system merely transfers them. While this protects insurance company profits, it endangers households with limited or no coverage as insurers retreat from vulnerable markets. The resulting uninsured losses either devastate individual households or fall to reactive, poorly budgeted public disaster programs. In an era of accelerating climate change, this approach is unsustainable both personally and systemically.
Climate change is making disasters more frequent and severe, presenting a massive and increasing risk to everyone. Individuals cannot and should not bear full responsibility for that risk. Addressing this crisis requires decarbonization to prevent further climate deterioration, which means ensuring that the fossil fuel industry that contributed to the crisis assumes responsibility. Programs like the Greenhouse Gas Reduction Fund show how we can mobilize significant public investment toward these goals.
Yet even as we work to reduce emissions and mitigate damage, we must protect people from disasters that are now inevitable. The current insurance crisis shows how this challenge intersects with our broader housing safety and affordability crisis — and how our fates are shared.
Coverage and protection from climate impacts and major disasters should embody principles of solidarity, safeguarding everyone regardless of socioeconomic status, race, or geography. While these risks affect us all, their burdens fall heaviest on those who can least afford them. We must reimagine our disaster risk finance system to prioritize resilience, ensure equitable protection, and provide greater support to people most at risk of financial devastation after disasters.
A New Vision for Disaster Protection
Instead of prioritizing insurance company profits, policymakers should focus on reducing risk for households. Policy solutions must seek to answer the question of what role private insurance markets should play in a broad suite of policies to keep people safely and affordably housed as disasters increase in frequency and scale.
To do that we propose that states establish housing resilience agencies. A housing resilience agency (HRA) would have two primary functions: to coordinate and oversee comprehensive disaster risk reduction activities in the state, and to provide public disaster insurance that offers fair and equitable protection.
While the federal-level National Flood Insurance Program can rely on the full fiscal power of the US federal government to respond to increased climate-related disasters, the program’s well-documented struggles suggest an urgent need for state governments to get smart about overhauling their approach to risk reduction and disaster recovery. Given this, one pillar of our proposal emphasizes proactive disaster risk reduction in frontline communities.
Existing state-level programs to reduce risk have shown promising results but have failed to reach scale. Now is the time to learn from and accelerate this crucial work. Given that insurance markets and so much of risk reduction and emergency management are regulated and managed at the state level, our policy proposal therefore focuses on state-level implementation.
Furthermore, current responsibility for resilient infrastructure investments largely rests with individual urban governments, many of which are already experiencing growing fiscal strains due to the climate crisis. This devolution of responsibility and resources leaves some communities more capable of coping with disaster risks than others, in ways that will likely increase inequality. Larger entities with greater ability to bear costs and risks, like states, should take more responsibility for these investments.
However, this does not mean that all planning should be held at the state level. Instead, resilience priorities can be devolved for community identification and control where appropriate, while funding is aggregated at higher levels where it can be accumulated most effectively, then distributed to equitably meet community needs.
The risk reduction pillar of an HRA would coordinate and oversee comprehensive disaster risk reduction to limit damage before disasters strike — the more we build resilience, the less we need to rely on the safety net of insurance. Activities would include helping to determine where it’s too risky to build new housing, helping people relocate from where it’s too dangerous to stay, carrying out community-oriented risk mitigation efforts, and more.
The best way to spread the risk of non-preventable disasters and ensure access to equitable post-disaster recovery funds — without prioritizing rent-seeking — is through a state-run disaster insurance program. That’s why the second pillar of the HRA focuses on a new approach to insurance: comprehensive public disaster insurance that fairly spreads the risk of non-preventable disasters and provides equitable post-disaster recovery support that increases resilience, coupled with the joined-up planning and investment in risk reduction outlined in the first pillar of this proposal.
Coverage would be available for homeowners, renters, mobile home dwellers, affordable housing providers, etc. Private insurers would still provide the standard policies that cover things like kitchen fires and burglaries, but the HRA would provide disaster insurance for all – kind of like a single-payer system for disaster insurance.
This separation of roles is essential so that private insurers don’t just cherry-pick the least risky policies, leaving the public program with the riskiest ones — replicating many of the same problems we currently face with state insurers of last resort — or benefit from the public investments in risk reduction without putting their own skin in the game.
Insurance for Safety, Not Profits
Because this public disaster insurance program would pool and spread risks across the entire state market, and the HRA’s risk reduction pillar would greatly lessen the damage caused by disasters, we assume a more targeted purpose for private reinsurance instruments. Under this approach, state-level dependence on private reinsurance markets would be reduced, while instruments like catastrophe bonds and traditional reinsurance could continue to play a targeted role in financing high-loss, low-probability disasters, such as a major California earthquake or strong Florida hurricane.
This financing capacity could also potentially be consolidated at a federal level as an overarching facility to support reinsurance financing at scale and streamline costs. We also propose, below, how the federal government can provide public reinsurance support to HRAs.
In the states that have Fair Access to Insurance Requirements (FAIR) plans or residual markets with quasi-public insurers like California’s earthquake program, those plans could be reshaped into a full public disaster insurance program. In states without existing programs, a new insurance entity could be created from scratch or built upon an existing entity like a green bank, or a different existing state agency such as a housing finance agency.
Our proposal outlines several aspects of HRAs that would ensure their transparent governance and build on the latest climate science. For example, we envision public catastrophe risk modeling and a climate risk advisory council, which would inform the agency’s work and be guided with oversight by a democratic governing board with members from policy, civil society, and scientific communities.
We think financing to support an HRA should come from diverse sources, especially those entities most responsible for the current crisis and those that would most benefit from stability in home insurance. In terms of responsibility, we propose taxes or fees on the fossil fuel industry and private insurers. Mortgage lenders are at the top of our list of those who would benefit from stability in home insurance: the existence of insurable properties means they can lend against them, while reducing climate-related risks reduces the likelihood of mortgage defaults. Along with making this a single-payer system, these financing mechanisms are key to avoiding privatizing the profits and socializing the losses from future disasters.
While our focus is primarily on state-level responses, we absolutely believe that federal-level policy measures are important and necessary. The federal government could and should support state HRAs with reinsurance and risk reduction funding. A federal HRA could even be considered, though there are some structural obstacles to that. It is important to stress, however, that partial application of these proposals will not be enough — comprehensive risk reduction coupled with an insurance system that truly protects against the financial impacts of disasters is the only thing that will really address today’s crisis.
This HRA vision is intended to lay out broad approaches and principles, not to define every single detail of how states would design and implement housing resilience agencies, since the best policy approach will vary according to geography. We hope that local organizers and policymakers will be inspired by this vision and use it as a jumping-off point for their own visions and policymaking.
Regardless of how these solutions develop, we must confront the growing housing safety and affordability crisis under climate change. Public programs that provide fair and equitable disaster insurance protection, coupled with coordinated and comprehensive disaster risk reduction, are the way forward.
NCDOT Communications, Creative Commons 2.0
Though the full extent of the havoc wrought by Hurricanes Helene and Milton is still being assessed, by now we’re all clear on one thing: home insurance markets are in crisis, with devastating consequences for people across the United States.
While Helene and Milton have thrown the chaos of home insurance into stark relief, this is not a new issue. Insurance companies have been cutting coverage, refusing to renew policies, and departing from certain regions and even whole states. This has left homeowners, multifamily housing providers, and renters exposed to possible financial ruin. More broadly, it leaves property markets vulnerable to collapse, with implications for the entire financial system. It has also strained public coffers as these yawning insurance gaps mean state and federal disaster response programs are expected to foot the bill after the fact.
Unfortunately, media and policy conversations have mostly focused on rescuing the insurance industry instead of exploring the root causes of housing instability in a country increasingly vulnerable to climate disasters. So we at Climate and Community Institute decided to dig below the surface and investigate how insurance price increases, climate risk, and socioeconomic factors overlap across the country. We also interrogated whether the media and policy solutions on offer are the best approach to ensuring safe, affordable housing. Building on those findings, we designed policy ideas that can ensure protections for homeowners and renters and meet the moment with concrete risk reduction solutions.
Our analysis showed that the US home insurance system is fatally flawed, relying too heavily on private markets to manage household disaster risk. As our final report documents, insurance providers are disappearing for single-family homeowners while multifamily housing providers face vanishing coverage options. These and other market failures are creating widening protection gaps that leave the most vulnerable families exposed to disaster losses while worsening the housing affordability crisis.
The industry’s profit-driven model only compounds the problem. Rather than reducing underlying risks, the system merely transfers them. While this protects insurance company profits, it endangers households with limited or no coverage as insurers retreat from vulnerable markets. The resulting uninsured losses either devastate individual households or fall to reactive, poorly budgeted public disaster programs. In an era of accelerating climate change, this approach is unsustainable both personally and systemically.
Climate change is making disasters more frequent and severe, presenting a massive and increasing risk to everyone. Individuals cannot and should not bear full responsibility for that risk. Addressing this crisis requires decarbonization to prevent further climate deterioration, which means ensuring that the fossil fuel industry that contributed to the crisis assumes responsibility. Programs like the Greenhouse Gas Reduction Fund show how we can mobilize significant public investment toward these goals.
Yet even as we work to reduce emissions and mitigate damage, we must protect people from disasters that are now inevitable. The current insurance crisis shows how this challenge intersects with our broader housing safety and affordability crisis — and how our fates are shared.
Coverage and protection from climate impacts and major disasters should embody principles of solidarity, safeguarding everyone regardless of socioeconomic status, race, or geography. While these risks affect us all, their burdens fall heaviest on those who can least afford them. We must reimagine our disaster risk finance system to prioritize resilience, ensure equitable protection, and provide greater support to people most at risk of financial devastation after disasters.
A New Vision for Disaster Protection
Instead of prioritizing insurance company profits, policymakers should focus on reducing risk for households. Policy solutions must seek to answer the question of what role private insurance markets should play in a broad suite of policies to keep people safely and affordably housed as disasters increase in frequency and scale.
To do that we propose that states establish housing resilience agencies. A housing resilience agency (HRA) would have two primary functions: to coordinate and oversee comprehensive disaster risk reduction activities in the state, and to provide public disaster insurance that offers fair and equitable protection.
While the federal-level National Flood Insurance Program can rely on the full fiscal power of the US federal government to respond to increased climate-related disasters, the program’s well-documented struggles suggest an urgent need for state governments to get smart about overhauling their approach to risk reduction and disaster recovery. Given this, one pillar of our proposal emphasizes proactive disaster risk reduction in frontline communities.
Existing state-level programs to reduce risk have shown promising results but have failed to reach scale. Now is the time to learn from and accelerate this crucial work. Given that insurance markets and so much of risk reduction and emergency management are regulated and managed at the state level, our policy proposal therefore focuses on state-level implementation.
Furthermore, current responsibility for resilient infrastructure investments largely rests with individual urban governments, many of which are already experiencing growing fiscal strains due to the climate crisis. This devolution of responsibility and resources leaves some communities more capable of coping with disaster risks than others, in ways that will likely increase inequality. Larger entities with greater ability to bear costs and risks, like states, should take more responsibility for these investments.
However, this does not mean that all planning should be held at the state level. Instead, resilience priorities can be devolved for community identification and control where appropriate, while funding is aggregated at higher levels where it can be accumulated most effectively, then distributed to equitably meet community needs.
The risk reduction pillar of an HRA would coordinate and oversee comprehensive disaster risk reduction to limit damage before disasters strike — the more we build resilience, the less we need to rely on the safety net of insurance. Activities would include helping to determine where it’s too risky to build new housing, helping people relocate from where it’s too dangerous to stay, carrying out community-oriented risk mitigation efforts, and more.
The best way to spread the risk of non-preventable disasters and ensure access to equitable post-disaster recovery funds — without prioritizing rent-seeking — is through a state-run disaster insurance program. That’s why the second pillar of the HRA focuses on a new approach to insurance: comprehensive public disaster insurance that fairly spreads the risk of non-preventable disasters and provides equitable post-disaster recovery support that increases resilience, coupled with the joined-up planning and investment in risk reduction outlined in the first pillar of this proposal.
Coverage would be available for homeowners, renters, mobile home dwellers, affordable housing providers, etc. Private insurers would still provide the standard policies that cover things like kitchen fires and burglaries, but the HRA would provide disaster insurance for all – kind of like a single-payer system for disaster insurance.
This separation of roles is essential so that private insurers don’t just cherry-pick the least risky policies, leaving the public program with the riskiest ones — replicating many of the same problems we currently face with state insurers of last resort — or benefit from the public investments in risk reduction without putting their own skin in the game.
Insurance for Safety, Not Profits
Because this public disaster insurance program would pool and spread risks across the entire state market, and the HRA’s risk reduction pillar would greatly lessen the damage caused by disasters, we assume a more targeted purpose for private reinsurance instruments. Under this approach, state-level dependence on private reinsurance markets would be reduced, while instruments like catastrophe bonds and traditional reinsurance could continue to play a targeted role in financing high-loss, low-probability disasters, such as a major California earthquake or strong Florida hurricane.
This financing capacity could also potentially be consolidated at a federal level as an overarching facility to support reinsurance financing at scale and streamline costs. We also propose, below, how the federal government can provide public reinsurance support to HRAs.
In the states that have Fair Access to Insurance Requirements (FAIR) plans or residual markets with quasi-public insurers like California’s earthquake program, those plans could be reshaped into a full public disaster insurance program. In states without existing programs, a new insurance entity could be created from scratch or built upon an existing entity like a green bank, or a different existing state agency such as a housing finance agency.
Our proposal outlines several aspects of HRAs that would ensure their transparent governance and build on the latest climate science. For example, we envision public catastrophe risk modeling and a climate risk advisory council, which would inform the agency’s work and be guided with oversight by a democratic governing board with members from policy, civil society, and scientific communities.
We think financing to support an HRA should come from diverse sources, especially those entities most responsible for the current crisis and those that would most benefit from stability in home insurance. In terms of responsibility, we propose taxes or fees on the fossil fuel industry and private insurers. Mortgage lenders are at the top of our list of those who would benefit from stability in home insurance: the existence of insurable properties means they can lend against them, while reducing climate-related risks reduces the likelihood of mortgage defaults. Along with making this a single-payer system, these financing mechanisms are key to avoiding privatizing the profits and socializing the losses from future disasters.
While our focus is primarily on state-level responses, we absolutely believe that federal-level policy measures are important and necessary. The federal government could and should support state HRAs with reinsurance and risk reduction funding. A federal HRA could even be considered, though there are some structural obstacles to that. It is important to stress, however, that partial application of these proposals will not be enough — comprehensive risk reduction coupled with an insurance system that truly protects against the financial impacts of disasters is the only thing that will really address today’s crisis.
This HRA vision is intended to lay out broad approaches and principles, not to define every single detail of how states would design and implement housing resilience agencies, since the best policy approach will vary according to geography. We hope that local organizers and policymakers will be inspired by this vision and use it as a jumping-off point for their own visions and policymaking.
Regardless of how these solutions develop, we must confront the growing housing safety and affordability crisis under climate change. Public programs that provide fair and equitable disaster insurance protection, coupled with coordinated and comprehensive disaster risk reduction, are the way forward.
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