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The ‘red flags’ in INSURE Act natural catastrophe reinsurance program bill

Outlet: Insurance Business Magazine

Insurance policyholder advocates believe reinsurance program is needed amid insurer pullbacks.

“The challenge with this bill, in my mind, is how it’s really pointing to a deeper fundamental question of whether our states are the right place to provide this regulatory oversight, or whether we want to shift more of the regulatory oversight of the insurance industry to the federal government,” said Benjamin Keys, professor of real estate and finance at the University of Pennsylvania’s Wharton School.

Keys had previously warned that insurance challenges should serve as a “canary in the coalmine” for a looming real estate threat. An “era of complacency” is ending and individuals who flock to cat prone or at-risk areas can no longer ignore the potential insurance or property risk costs, he wrote in a May 2023 NY Times op ed.

Whether a federal reinsurance backstop would encourage capacity back into hard hit areas remains an “open question”, Keys, who was nevertheless buoyant on the INSURE Act’s potential, told Insurance Business.

“There are some laudable goals in this bill – expanding coverage, internalizing costs, targeting government assistance and innovation on longer-term policies, those dimensions are very promising,” Keys said.

Getting the price right on a longer-term policy may be a challenge, Keys acknowledged, but policyholders could benefit from a “more predictable contract”.

“Homeowners are completely in the dark on what their insurance rates going to be next year, or the year after that,” Keys said. “And so, when you’re making a homeownership decision, it’s supposed to be a very forward-looking decision. And the lack of long term insurance contracts hampers homeowners’ ability to get that forecast, so some innovation in that space is long overdue.”

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