Senate Hearing Focuses on Property Insurance
Last week, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing titled “Perspectives on Challenges in the Property Insurance Market and the Impact on Consumers.” The witnesses testifying included: Douglas Heller, Director of Insurance of the Consumer Federation of America (CFA); Michelle Norris, EVP of External Affairs and Strategic Partnerships for National Church Residences (NAHMA Federal Affairs Chair); and Jerry Theodorou, Policy Director, Finance, Insurance and Trade for the R Street Institute.
In his opening remarks, Sen. Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, highlighted issues negatively impacting the multifamily market, “…higher rates and deductibles, coverage limitations, and in some cases, no viable private market insurance coverage option at all. And because each insurance policy is a contract between a property owner and their insurer, it’s harder to know when insurers have stopped writing coverage for apartments in a community or a state. But apartment owners are seeing a clear trend. In many cases, renters will ultimately bear the burden, as higher insurance costs are passed on to them in the form of even higher rents. Owners of our already too-small supply of affordable apartments serving the lowest-income renters may be increasingly left with impossible choices.”
Douglas Heller was the first witness to provide testimony and shared several points in his remarks:
- Severe rate hikes by insurers and sudden announcements to limit sales in communities that companies have served for decades wreak havoc on homeowners and other property owners in Florida, Louisiana, California, Colorado, Texas, and a growing list of other states.
- Two primary 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. Additionally, the increasing use of drone imagery, scoring algorithms, and predictive models are giving insurers a magnified and, in some cases, exaggerated picture of existing and prospective customers’ risk profiles.
- To address affordability and availability, we must focus on providing and incentivizing more investments in risk reduction and loss mitigation.
- To stabilize the insurance market, we need to incorporate mechanisms that supplement the unregulated reinsurance market, such as a public mega-catastrophe reinsurance facility, to offload some of the extreme climate-change driven risk.
- Arguments that the problems stem from consumer protection laws that provide regulatory oversight or legal accountability for bad actors in the insurance industry are a distraction from the fundamental forces creating the availability and affordability problems.
- Rather than shining more of the risk burden to consumers through much higher deductibles and hollowed out coverage, policymakers should be encouraging the sales of more comprehensive all-risk policies that will provide more protection for homeowners, will more effectively spread risk, and will result in less reliance on post-disaster emergency aid.
- The problems in the insurance market must be considered in a larger framework that also includes public policy related to climate change, land use, building codes, and housing affordability and equity.
Next, in her opening remarks, Michelle Norris covered on several topics, highlighting current issues impacting the affordable housing industry. This includes Multifamily Housing Faces Unprecedented Property Insurance Rates, Property Insurance Rates Largely Driven by Volatility in the Market, Broader Insurance Issues Impacting Multifamily Housing, Insurance Rate Increases Negatively Impact Affordable Housing Supply, and Property Insurance Challenges Require Short -Term and Long-Term Policy Solutions. To highlight this last point, Ms. Norris provided the following:
Property Insurance Challenges Require Short -Term and Long-Term Policy Solutions
As the Committee and other policymakers evaluate ways to stabilize the insurance markets and ensure housing providers and the broader consumer market has access to affordable and attainable coverage to mitigate property and other risks, we believe there is a need for both short-term and long-term policy solutions.
- In the short-term, HUD and other federal agencies that provide funding for properties that families and seniors with low incomes call home may need to rethink existing insurance requirements and provide increased flexibility and additional funding to property owners to account for the real-world challenges they face in securing affordable insurance coverage. There are several administrative or regulatory actions that are being discussed among stakeholders and policymakers that could provide some relief include, but are not limited to, encouraging HUD to update its Operating Cost Adjustment Factor (OCAF) moving forward to account for property-level insurance increases; require HUD, the Federal Housing Finance Agency (FHFA), USDA (United States Department of Agriculture) Rural Housing and other federal stakeholders to review and update lender insurance requirements; providing Internal Revenue Service (IRS) guidance that allows developers to capitalize a pre-defined amount of insurance premiums in eligible basis under the Housing and allow for expenses related to insurance procurement and risk mitigation activities that improve property resilience to be capitalized and included in the eligible basis. These administrative actions have the potential to provide limited, but important, short-term relief to housing providers operating subsidized affordable housing.
- In the long-term, a greater level of intervention by the federal government in the insurance markets may be necessary given the current market failures stemming from the private market being unable or unwilling to offer property (and other lines) of coverage to property owners of all types. SAHF, NMHC, NAHMA, NAA and other stakeholders in the real estate industry are early in its coalition work to identify possible, long-term solutions. Possibilities could include, among other things, federal support for the property insurance market. Like the absence of accessible and affordable private sector insurance solutions that led to the creation of the National Flood Insurance Program (NFIP) and the Terrorism Risk Insurance Act (TRIA), today’s lack of capacity in the insurance and reinsurance markets is reaching crisis levels and has begun to raise serious alarm across the entire financial system with trillions of dollars in uncovered or uncoverable risk across real estate.
Finally, largely expressing views on behalf of the insurance industry, Jerry Theodorou talked about competition and how State price controls in the property insurance space. He states, “ Today’s hearing is timely because ill-advised government intervention in some insurance markets has contributed to unhealthy disruption of the markets. Intervention in the form of price controls and monopolistic markets has led to reduced availability of coverage and higher costs for insurance buyers and has weakened competitive forces, a principle underscored in a quote by noted economist Thomas Sowell: “Competition does a much more effective job than government at protecting consumers.” After taking aim at California, with a comparison to Florida and Louisiana, Theodorou concludes, “A free and competitive insurance market positively impacts customer choice and undergirds sound risk-adjusted pricing. However well-intentioned they may be, government-imposed price controls and other interventions lead to disruption and can, in extreme instances, result in crisis conditions where choice is limited, and prices rise unmanageably. Thank you for holding today’s hearing and thank you for your consideration of my views. I look forward to any questions you may have.”
Overall, the discussion during the Q & A largely fell along partisan lines with Democrats noting the impacts of climate change and price gouging from insurers and Republicans blaming President Biden policy priorities and state regulations, like Proposition 103 in California. NAHMA is encouraged that this issue has garnered the attention of Congress but remains cautious about the prospects for solutions in the near term.
Members can Click here to view Senate Banking Committee Hearing, “Perspectives on Challenges in the Property Insurance Market and the Impact on Consumers.”
Senate Banking Subcommittee Examines Housing Supply Challenges
This week, the Senate Banking Subcommittee on Housing, Transportation, and Community Development, held a hearing titled, “Housing Supply and Innovation”. The witnesses testifying included: Dr. Jenny Schuetz, Senior Fellow, Brookings Institution; Ms. Janne Flisrand, Co-Founder and Board Member, Neighbors for More Neighbors; Mr. Gregory Good, Chief Real Estate Officer and Director of Asset Management, Invest Newark; and Mr. Eric Schaefer, Chief Business Development Officer, Fading West Development.
Subcommittee Chair Tina Smith (D-MN) and Ranking Member Cynthia Lummis (R-WY) both voiced significant concern about the lack of affordable housing in their states and the country. In her opening remarks, Senator Smith shared, “There was less housing for rent and for sale than at any time in 30 years, according to Moody’s Analytics. Between 2012 and 2020. To over 10 years, we saw 15.6 million households form. But in that same time period, only about 11.9 million housing units were completed. So annual supply of housing units is running severely behind demand and needs to dramatically increase in order to catch up.
Since the housing crash in 2008, we’ve seen a small recovery at the high end of the housing market, but not for the middle or the low end. So the biggest undersupply we have is at the low for households at the low and middle income levels. It’s estimated that we’re short about 7.3 million rental homes that are affordable and available to low-income renters.
And again, according to Moody’s and 2022, the share of household income that is needed to rent an average priced apartment cross that rent burden threshold of 30% for the first time in nearly 25 years of tracking rents and income.”
In her opening remarks, Senator Lummis shared similar concerns, “And that dream is out of reach for an increasing number of Americans because of high prices and high mortgage rates. And I continue to hear weekly when I’m home and from constituents that are struggling to find a foothold in the housing market.
I also hear from companies that want to expand into new areas but cannot do so because the talented workers they need can’t find housing nearby. The nurses, police officers and others we need in our communities often cannot afford to live where they serve. Without enough housing, we damage our communities hold back the small businesses that power this country’s growth and make it harder for millions of families to build wealth. Estimates of the housing supply gap vary, but we will need millions of additional housing units to meet demand.
The housing market has not kept up when markets fail. It is important that we look at what is causing the failure. Many of the barriers to building additional housing are not within the scope of federal policy. I still want to acknowledge where all of us can work to do better.”
During the hearing, Senators and witnesses discussed a range of issues: coupling housing development with transportation, the impact housing shortages in rural and urban communities have on businesses, supply and demand challenges, zoning, land banks, manufactured housing, and modular construction. Members can Click here to view the Senate Banking Subcommittee Hearing, “Housing Supply and Innovation.”