New Report Outlines Reforms to Property Insurance Plans of Last Resort Amid Escalating Climate Disasters
WASHINGTON, D.C. – As wildfires, floods, and severe storms increasingly devastate communities across the United States, a new report highlights a crisis in the making for state-created Fair Access to Insurance Requirements (FAIR) plans, which serve as insurance of last resort for some homeowners. The report, Insurance for a FAIR Future: Leveraging Insurance for Climate Adaptation, points to an accelerating cycle of climate-driven disasters that could jeopardize the financial stability of these state insurance programs.
“Climate change is creating an insurability crisis, and states need to act now before that crisis overwhelms their financial stability,” said Alfonso Pating, a global financial regulation specialist at NRDC (Natural Resources Defense Council) and author of the report. “As climate-influenced disasters grow in intensity and unpredictability, property insurance will continue to get more expensive and less available. Building resilience and reducing risks are paramount in providing a stable insurance market.”
The report lays out a number of specific actions states should take now to ensure these last-resort insurance plans don’t see their balance sheets wiped out by disasters. This includes providing incentives so homeowners upgrade their dwellings and reduce the risks of wildfires, hailstorms, or high winds to their property.
FAIR plans, originally designed for homeowners unable to secure coverage in the private market, are now experiencing mounting financial pressures as disasters grow in frequency and severity. With private insurers withdrawing from high-risk markets and increasing premiums, more homeowners are forced into FAIR plans. In order to pay damage claims from a growing number of policy holders impacted by climate-influenced disasters, some states’ FAIR plans are imposing additional assessments or surcharges on private insurers and policyholders, effectively socializing losses while privatizing profits.
The report identifies specific measures that regulators and policymakers should adopt to strengthen FAIR plans and better manage climate risk, including:
- Barring insurance regulators from the recoupment of assessment costs from policyholders
- Incentivizing risk reduction via hazard mitigation and climate adaptation measures
- Addressing inequitable access to insurance
- Improving FAIR plan balance sheets
- Authorizing FAIR plans to sell catastrophe bonds as a form of reinsurance
- Providing potential additional product offerings
The report details the importance of promoting climate mitigation, particularly in high-risk communities, as a critical strategy to reduce financial pressures on FAIR plans and ensure insurance remains accessible for those who need it most.
For more detailed findings and recommendations, download and read the full report below.
NRDC (Natural Resources Defense Council) is an international nonprofit environmental organization with more than 3 million members and online activists. Established in 1970, NRDC uses science, policy, law and people power to confront the climate crisis, protect public health and safeguard nature. NRDC has offices in New York City, Washington, D.C., Los Angeles, San Francisco, Chicago, Beijing and Delhi (an office of NRDC India Pvt. Ltd).