On November 14-15, the FHFA hosted a two-day insurance symposium covering a wide-ranging set of topics related to consumers and property insurance. The two-days of content included leaders from mortgage lending, realtors, builders, federal regulatory agencies, state insurance commissioners, property and casualty insurance companies and reinsurance entities.
Given the complexity of the issue, this will likely be one of many forums on more specific areas of focus going forward. One commentator aptly summarized the first day sessions stating, though there is much work to be done, there appears to be alignment among a broad set of stakeholders that the issue needs to be addressed which has not always historically been the case.
A few key highlights from the session can be found below.
Consumer Disclosure: There was broad consensus that more could be done through disclosures, while commentators shared nuanced differences around: (i) standard setters; (ii) where to disclose in the process; (iii) the content and complexity of the disclosures.
- NAR and Redfin highlighted they include risk scores in listings on their respective platforms and research has indicated consumers take them into consideration.
- Fannie shared their Consumer flood survey results indicating there is still knowledge lacking around what consumers do and do not understand.
- Gaps included consumers understanding of what is included/covered in their policies and actionable steps of risk mitigation they could take that might result in lower premiums.
There was mixed sentiment on the value of disclosures: barriers included: (i) shortage of supply and low affordability results in climate risk avoidance being an amenity, rather than a decision criteria for most families; (ii) having full information does not always result in different selection outcomes for consumers; (iii) clear consumer friendly language around property mitigation steps that could result in a lower premium are still somewhat academic (e.g. brush clearing, hardscaping, roofing material, etc.).
Potential Policy Solutions:
Agreement that there is not one-fit given the size of different states and the property risk of certain perils.
A few suggestions included:
From a mortgage lender perspective assessing on Ability-to-Repay, there is a potential opportunity to develop a fully indexed pricing on the insurance or property risk component that would be similar to ARM’s.
Going further, this could be something embedded in AUS feedback and calculations based on a risk score.
From a secondary market perspective panelists suggested:
- There is a potential for a risk score to be embedded in secondary market execution through LLPA’s, but given the geographic difference that solution might be chasing private market pricing.
- The GSE’s could evaluate reinsurance risk transfers to lay off the risk to private markets. The panelist highlighted FEMA’s NFIP recent reinsurance executions as a potential model framework.
Standards and Data:
Panelists agreed there is increased data availability, but it is not always standardized when analytics are applied and can be confusing to consumers.
- Explore further property characteristic standards similar to other sectors. For example, Clean Energy standards for household products and appliances.
- One panelist highlighted including a Risk Score in listings is helpful, but going further with a marketplace of premium pricing options in listings could further increase transparency and awareness.
- Simple disclosures created jointly by the CFPB and GSE’s may offer additional benefits to consumers and lenders to produce consistency.
Many of the panelists reiterated the complexity of the issue familiar to other insurance policy issues: consumer behavior (near-term versus long-term benefits of insurance); free-rider concerns (mortgaged properties with higher insurance due to owned outright properties dropping coverage) and affordability.