Category: Insurance

Assessing the Impact of the LA Fires and Insurance Markets

Posted on by Abigail Grenadier

The fires in Los Angeles this week have caused tremendous damage to lives and property, demonstrating how risks from natural catastrophes are a growing challenge to both people and industries across the country. National policy solutions are needed to prepare for the future and effectively manage natural catastrophe risk.  (Associated Press, Jan. 11 | RAND, Jan.16)

Historic Damages

  • The devastating fires tearing through Los Angeles are poised to become the costliest in US history and are fueling an insurance crisis in California, raising questions about how millions of homeowners will secure coverage against future disasters. (Associated Press, Jan. 11)
  • Damages from the LA fires could reach up to $275 billion after the blazes ripped through some of Los Angeles County’s wealthiest neighborhoods. (Orange County Register, Jan. 16)
  • The staggering costs stem from fires hitting densely populated areas filled with some of the nation’s priciest real estate, says Accuweather’s Chief Meteorologist Jonathan Porter. (Associated Press, Jan. 11)

Insurance Impact

  • The wildfires that destroyed homes in multiple sections of the Los Angeles area will test California’s efforts to stabilize the state’s insurance marketplace after many insurers stopped issuing residential policies due to the high fire risk. (KNBC, Jan.10)
  • The California FAIR Plan was created in 1968 and provides basic fire insurance coverage for high-risk properties when traditional companies would not. (NYT, Jan.14 | Bloomberg, Jan. 15)
  • Some are worried that the FAIR Plan won’t have enough funds to cover the damages, but FAIR Plan spokesperson Hillary Mclean assured the public that “the FAIR Plan has payment mechanisms in place, including reinsurance, to ensure all covered claims are paid.” (KNBC, Jan.10)
  • The U.S. Treasury’s Federal Insurance Office (FIO) released a report Thursday, showing homeowners insurance costs are rising faster than inflation, with premiums 82% higher in high-risk ZIP codes due to climate-related disasters. (Treasury News Release, Jan. 16)
  • The report based on extensive data from 2018-2022, highlights increasing challenges for homeowners and insurers alike, as nonrenewal rates and claims costs surge in areas most affected by severe weather events. (CNBC, Jan. 16)

Policymaker and Industry Reaction

  • Policymakers are working to streamline the permitting process to expedite recovery and are actively monitoring the insurance marketplace. Senator Sheldon Whitehouse (D-RI) told CBS News “We will be watching to see whether the collapse of a trembling home insurance market accelerates after this added shock”. (CBS News, Jan.16)
  • California Governor Gavin Newsom has temporarily suspended permitting and review requirements under the California Environmental Quality Act (CEQA) and the California Coastal Act. The move aims to expedite the rebuilding process for fire victims, enabling faster restoration of homes and businesses, Newsom said. (GlobeSt., Jan. 14)
  • The proliferation of natural catastrophe threats has raised concerns about commercial insurance coverage for real estate.
  • Republicans on the Senate Banking Committee, led by Senators John Kennedy (R-LA) and Mike Rounds (R-SD), are drafting legislation to reform the National Flood Insurance Program (NFIP) and provide broader disaster relief for victims of catastrophes like wildfires, floods, and storms. (The Hill, Jan. 14)
  • The proposed initiative aims to expand and improve disaster coverage without relying on taxpayer subsidies, addressing long-term issues with the NFIP and creating a more comprehensive program for natural disasters.

Real Estate Industry Response

  • The real estate industry continues to lead in the response and recovery to these fires.
  • A group of 15 leading multifamily firms and commercial real estate industry groups has quickly banded together to support residents and rebuild Los Angeles following the wildfires that struck the city. RER members, including Cityview, Lincoln Property Company, and Marcus & Millichap support the coalition. (ConnectCRE, Jan. 16)

Natural catastrophe insurance will be discussed at RER’s upcoming Homeland Security Task Force and Risk Management Committee Meeting next week at our 2025 State of the Industry Meeting in Washington, DC.

Hurricanes Helene and Milton: The Case for NFIP Reform

Posted on by Abigail Grenadier

Commercial real estate owners face soaring insurance costs as back-to-back hurricanes place financial strain on insurers and the National Flood Insurance Program (NFIP). The implications for property owners, especially in coastal areas, are severe, with insurance premiums skyrocketing and coverage harder to secure.

Storm Impact and Market Challenges

  • Milton is the second major storm to strike Florida in less than two weeks. The hurricane could cause over $50 billion in damages, with worst-case losses approaching $175 billion, according to Wall Street analysts. (CNBC, Oct. 8)
  • Potential insured losses from Milton are expected to be substantial and could amount to $60 billion, according to an S&P Global Inc. report. (Bloomberg, Oct. 9)
  • Without a robust, long-term NFIP, property owners face escalating risks from future storms, leaving both homeowners and commercial real estate properties vulnerable. (Roundtable Weekly, Oct. 4)
  • With more severe storms expected, CRE property owners are struggling to cover rising costs—sometimes opting to forego upgrades or sell assets to manage financial pressures. (NYT, Oct. 8)
  • According to Marsh McLennan, premiums on commercial properties have increased by an average of 11% nationwide, and even more in storm-prone areas. The report also states that owners with “significant exposures and sustained losses” can expect rates to climb by 50% to 100%.
  • “High-magnitude catastrophe losses, the enduring challenges of the pandemic on the supply chain, fluctuations in the employment market, and rising inflation have banded together to create a perfect storm that threatens the sustainability of every property portfolio.” (Marsh McLennan report)

Federal Challenges and Response

  • Lawmakers remain divided on addressing FEMA’s potential disaster fund shortfall, which could jeopardize rebuilding infrastructure like roads and water facilities. Speaker Mike Johnson has indicated no plans for Congress to reconvene and approve more disaster funding. (PoliticoPro, Oct. 9)
  • The Biden administration is confident that FEMA’s disaster relief fund has sufficient resources to support recovery efforts for both Helene and Milton. However, they have raised concerns about the fund’s solvency through the remainder of the hurricane season ending in November. (PoliticoPro, Oct. 10)
  • Milton could also spark debate again in Washington, D.C., about the need for a national catastrophe insurance program. (PoliticoPro, Oct. 9)

NFIP Under Pressure

  • With nearly two million NFIP policies in areas hit by Helene and Milton, the program’s $15 billion in coverage may fall short, prompting debates over whether to raise the NFIP’s borrowing authority, forgive debt, or appropriate funds to cover policyholders’ claims. (Politico, Oct. 9)
  • House Financial Services Chair Patrick McHenry (R-NC) and the committee’s lead Democrat, Rep. Maxine Waters (D-CA), have previously collaborated on long-term NFIP reform. However, they now hold differing opinions on how to free up funds for claims if needed.
  • Rep. McHenry leans toward raising the NFIP’s borrowing cap or appropriating additional funds, while Rep. Waters has consistently supported debt forgiveness. Currently, Congress has set a $30.4 billion limit on the NFIP’s borrowing capacity from the Treasury.
  • The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms. These measures are essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy.

The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs. RER will continue advocating for targeted policy solutions that can help alleviate increased insurance costs for housing providers nationwide.

Housing Coalition Calls on Lawmakers to Address Rising Insurance Costs

Posted on by Abigail Grenadier

On Monday, The Roundtable as part of a broad housing coalition wrote to policymakers offering solutions to address rising insurance premiums across the nation’s housing market and its significant impact on all stakeholders throughout the commercial real estate industry. (Letter)

Coalition Policy Solutions

  • The lack of affordability and availability of insurance options has both short- and long-term implications for the real estate industry’s ability to address the housing crisis.
  • The letter suggests several measures to mitigate these issues, including regulatory reforms, public-private partnerships, and innovative insurance products tailored toward affordable housing projects.
    • Federal Backstop for Catastrophic Coverage: A federal backstop, similar to terrorism risk and national flood insurance, could help stabilize the market.
    • Adjust Operating Cost Adjustment Factor (OCAF) Methodology at HUD: Use industry data for property and casualty insurers to reflect actual insurance costs for rental housing.
    • Modernize Insurance Requirements: Revise stringent insurance requirements for federally-backed loans to provide more flexibility.
    • Expand Federal Grants and Programs: Leverage existing federal programs to subsidize insurance costs and support resiliency investments.

Unprecedented Insurance Rates

  • The volatility in the insurance market, driven by more frequent natural catastrophes and inflation, has led insurers to raise premiums, increase deductibles, and limit coverage.
  • Rising insurance premiums significantly impact housing providers, developers, and renters across the U.S., exacerbating housing affordability challenges and disincentivizing providers from participating in the affordable housing market.
  • Insurance rates have surged dramatically, with property insurance rates increasing for 25 consecutive quarters and casualty insurance rates for 17.
  • Over the past three years, affordable rental housing communities have seen premium increases ranging from 30% to 100%.

  • An October 2023 survey and report, commissioned by the National Leased Housing Association (NLHA), found that affordable housing providers are facing much higher premiums, with nearly one in every three policies experiencing rate increases of 25% or more in the most recent renewal period.

National Flood Insurance Program (NFIP)

  • A recent report by the Joint Economic Committee Democrats found that the total annual economic burden of flooding in the United States is between $179.8 and $496 billion—equivalent to 1-2% of U.S. GDP in 2023. (JEC Report on Flooding)
  • Congress has enacted 30 short-term extensions of the NFIP. The most recent stopgap spending bill extended the NFIP’s funding through September 2024. (PoliticoPro, June 10)
  • The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms.
  • A long-term reauthorization of the NFIP is essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy.

The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs through targeted policy solutions that can help alleviate the burden on housing providers and ensure the availability of affordable housing nationwide.