AIA & RAA REPORT: Easing the Homeowners’ Insurance Crisis on the Atlantic and Gulf Coasts

The American Insurance Association (AIA) and The Reinsurance Association of America (RAA) today issued a report proposing that insurance and mitigation subsidies – similar to subsidies for home heating oil and telecommunications services – be offered as a way to ease the homeowners’ insurance challenges in the Atlantic and Gulf Coast States. 
 
The record hurricane seasons of 2004-05 have continued to cast a long shadow on the homeowners’ insurance market for many residents in states bordering the Gulf of Mexico and the Atlantic Ocean. 
 
The report released today suggests that a possible solution to this crisis is to offer insurance and mitigation subsidies targeting those who need it most – low to moderate income homeowners living in coastal areas where insurance affordability and availability challenges are most severe. 
 
Policy makers and private sector experts have struggled with various ways to enhance homeowner insurance affordability and availability in the wake of these developments.  
 
The federal government has already established a precedent for this practice through means-tested and geographically targeted subsidies for home heating oil and telecommunications services. 
 
Gov. Marc Racicot, president of the American Insurance Association (AIA), Frank Nutter, president of the Reinsurance Association of America (RAA), and Robert Litan, Senior Fellow in Economic Studies at the Brookings Institution authored the report. Mr Litan, an economist and lawyer who has served in a variety of federal agencies and White House posts, is an expert on financial and regulatory issues. 
 
Some key findings in the report include: 
 
• It is unfair and inefficient to ask taxpayers living in inland locations to pay for the catastrophe losses of those living on the coasts who are financially capable now of purchasing insurance at market rates. Simply put, those who are currently exposed to risk now should bear the costs of that risk now. 
 
• Homeowners who have taken mitigation measures and purchased insurance are much more financially resilient following a catastrophe losses, and so it is in the interest of government and taxpayers to ensure that those with limited financial means have the ability to purchase it. 
 
• The targeted program would support low to moderate income coastal homeowners with their purchase of homeowners’ insurance and for making qualified investments in catastrophe mitigation – such as securing roofs to the underlying structure and installing high impact windows or shutters, non-sliding patio doors, or high wind-resistant garage door and track systems. 
 
• All states exposed to catastrophe losses have an interest in encouraging their citizens to prevent catastrophe losses. The more effective mitigation is, the more lives are saved, more injuries are avoided, and the more rapidly state and local economies can recover after a catastrophe. 
 
“The increase in homeowners’ insurance premiums we’ve seen in coastal areas pose especially significant hardships for those residents with limited financial means,” said Gov. Marc Racicot. “This report offers a common-sense solution to ease the burden on low-to-moderate income residents exposed to hurricane risks.” 
 
“All homeowners, including coastal residents, can reduce their catastrophe losses by investing in various mitigation measures,” said Frank Nutter. “The federal government clearly has an interest in encouraging this practice, especially among low to moderate-income households, who are likely to be less financially resilient than more affluent households.” 
 
About AIA 
 
The American Insurance Association represents approximately 350 major insurance companies that provide all lines of property and casualty insurance and write more than $123 billion annually in premiums.

Source: Source: AIA Press Release | Published on October 19, 2007