Editorial: Alarm signs in insurance will require Iowa to respond
More frequent natural disasters are disrupting insurance markets. Iowa is seeing stress on long-standing relationships in property and casualty insurance.
The upheaval is likely far from finished. In the long run, if Iowans are to be able to afford coverage against catastrophe for homes and businesses, the way it’s provided may look different.
Farmers Mutual Hail Insurance Co. and Grinnell Mutual told the Register’s Tyler Jett that they were backing away from reinsuring some companies. Reinsurance helps insurers spread their own risk and keeps markets stable. Farmers Mutual cited a “significantly increased loss experience that is unsustainable.” Many Iowa companies of varying sizes are confronting large cost increases and deciding what to charge their customers.
More: 'I don't want to be the bad guy': Small-town Iowa insurers face imposing huge rate hikes
No single factor completely explains the challenging market in insurance. After past crises of premium increases and decreased coverage, some critics have faulted insurance companies, saying their appetite to maintain profit as interest rates fluctuate results in worse deals for consumers. But today, it’s apparent that a serious factor in Iowa, and around the nation and the world, is the frequency of high-cost disasters. Those disasters result from the types of storms that scientists say are correlated with a warming world.
State Farm has joined other companies in no longer issuing homeowner policies in parts of California, especially where wildfires repeatedly threaten and burn communities. Hurricanes have led to similar situations in Florida.
Shifts could be big
The debate over the appropriate policy responses for individuals, businesses and governments to climate change is well-trod ground. The question of keeping insurance available and affordable is narrower and mostly independent of how we react to global temperatures.
More: Editorial: The climate crisis is already here. Iowa has to work on adapting.
Tom O’Meara, executive director of the Independent Insurance Agents of Iowa, told Jett that Iowa is one of three states without a cap on payouts for a single event and that such a cap could help settle things down in the short run. Even if legislators agree to that, it’s at best an answer to kick the can down the road. The number of catastrophes in a given time is at least as big a concern as the severity of those catastrophes.
Suggestions that more prudence and perhaps rules about where people build also aren’t as helpful in Iowa as they might be in other places. It may be fair to treat a property in a location prone to wildfires or hurricane storm surge differently. But what can a homeowner do to be out of reach of the next derecho?
The Iowa FAIR Plan Association is established by state law to give basic coverage to certain people who cannot obtain it any other way. Its role could be to step in if and when companies decide they no longer can do business in a particular location. More direct involvement from the state could be necessary down the road. (Leaders of the state Insurance Division declined to comment for Jett’s stories in the Register.)
More: Editorial: Many insurers want no part of arming school staff. Iowans should trust them.
Stop making debates political
The problem bears some resemblance to the stalemates over what to do about carbon dioxide emissions themselves. On climate change, no technical solution has emerged to allow to maintain the status quo without nasty consequences. In turn, with more natural disasters, the actuarial math means that, broadly, insurers will have to charge more or cover less. Expectations we’ve developed for property insurance have to be put aside permanently.
The least Iowa could do would be to approach serious attempts to figure this out without political grievance in mind. Unfortunately, that hasn’t ben Attorney General Brenna Bird’s path. This spring she joined 22 other state attorneys general in signing a letter to an international group of insurers that was formed to push aggressive steps to encourage customers to limit carbon emissions.
We can leave the finer points of antitrust law and policy to the lawyers, for now. But the letter makes clear from its first paragraph about an “activist climate agenda” that the focus on emissions is the actual problem, not the finer points of collusion and coercion. The Net-Zero Insurance Alliance has lost nearly half its members since the letter was sent in May, Reuters reported.
Industry could be transformed
Some analysts see this as a transformational decade for the industry as technological advances and new risk profiles change how people interact with insurance. Three partners at Bain & Co. wrote in 2021 that insurance companies “have the chance, perhaps even the duty, to take a firmer hand in moving beyond reimbursement for damage and controlling losses to incentivizing behaviors in ways that will reduce risks. If they can pull it off, the future of insurance looks bright.” The partners noted that disasters prompted federal governments in China and Australia to take steps to intervene in faltering markets.
Climate change’s effects are often impersonal, abstract and far away in geography and time. In contrast, evolutions in insurance will explicitly affect our neighbors, if not right now, soon. Iowans should pay attention.
— Lucas Grundmeier, on behalf of the Register’s editorial board
FURTHER READING: What your insurer is trying to tell you about climate change
FURTHER READING: Climate change and U.S. property insurance are a stormy mix
FURTHER READING: 2020 to 2030, 10 years that will transform insurance forever
FURTHER READING: Home insurers curb new policies in risky areas
This editorial is the opinion of the Des Moines Register's editorial board: Carol Hunter, executive editor; Lucas Grundmeier, opinion editor; and Richard Doak and Rox Laird, editorial board members.
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This article originally appeared on Des Moines Register: Opinion: Alarm signs in insurance will require Iowa to respond
