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US senators examine climate impacts on premiums

A US Senate budget committee has held a hearing on climate change and insurance impacts amid concern over increasing home premiums. 

Finity principal Rade Musulin, Oklahoma insurance commissioner Glen Mulready, Harvard Business School assistant professor of finance Ishita Sen, Florida resident Deborah Wood and public finance economist EJ Antoni from conservative think tank the Heritage Foundation appeared at the session in Washington.

Sydney-based and US-trained actuary Mr Musulin told the hearing challenges in Florida’s insurance market highlight rising risks in other regions. 

“Continued rapid exposure growth and more extreme hurricane losses amplified by climate change will cause increasing stress on the nation’s insurance system, which may be felt through solvency issues, non-renewals, growth of government pools, and affordability pressure,” he said. 

Future-proofing the building code and land use policies, while addressing climate change, are among important measures to consider, he said. 

Mr Mulready said a rise in convective storms and other severe weather events was a significant driver of premium gains, and inflation is increasing building material, labour and other repair-related costs. 

Fostering a “robust, competitive free market” is the most essential aspect of managing premiums, he said, while also supporting mitigation action. 

“Overly stringent regulations can stifle competition and lead to market exits, reducing choices for consumers,” he said. “We have seen this play out most recently in another state where there were artificial caps put in place on premium increases.” 

Dr Sen told the hearing Florida insurance issues and links to housing and mortgages present financial instability risks. Traditional insurers analysed by the major ratings companies are exiting the market and there has been a rise in mortgages backed by “fragile insurers”, she said. 

The committee, chaired by Democrat Senator Sheldon Whitehouse, also held an insurance-focused session in March last year. The hearings are titled Riskier Business: How Climate is Already Challenging Insurance Markets. 

Republican committee ranking member Chuck Grassley said “expensive liberal policies, not climate change” are to blame for much of the insurance market dynamics. 

The Heritage Foundation’s Dr Antoni said cost increases are the major driver of rising premiums. Other factors, he said, include 2020 riots, general lawlessness and over-regulation. He said evidence indicates climate change is not a significant contributor. 

“For example, hurricanes are not becoming significantly more numerous nor more powerful, but we are building more homes in their path and we are building more expensive homes there too,” he said.

“If government broadly, and this committee specifically, seek to relieve stress to the insurance industry and lower costs to consumers, your focus should be on reducing the government spending that created the inflation which is responsible for most of the increase in insurance premiums over the last several years.”