The Senate Budget Committee held a hearing, titled “Risky Business: How Climate Change is Changing Insurance Markets,” that touched on different topics, with a variety of witnesses from academia, the insurance industry, actuaries and R Street’s very own director of Finance, Insurance and Trade Policy, Jerry Theodorou. The panelists spoke to the impact climate change has had on insurance markets, and Theodorou explained how insurers and reinsurers must calibrate their products to address the alternating patterns of natural catastrophes. The hearing remained cordial and productive as industry experts highlighted what they are doing to better anticipate and properly address the needs of policyholders. 

Senators on both sides of the aisle asked the witnesses questions. Sen. Ron Johnson of Wisconsin, who mentioned that he is neither a climate skeptic nor an alarmist, asked Theodorou about property loss in high-risk areas, and he responded by saying “Indeed, values have gone up because of unsound development [and] population growth. We should discourage this sort of bad behavior. But the evidence shows the severity of events has increased.” 

Ranking Member Chuck Grassley then asked about the ways in which the insurance industry handles risk and whether we should have a “sky is falling” mentality due to climate change. Theodorou answered by pointing out that the industry has faced similar reckonings in the past and has continued to survive and thrive. He also mentioned that the industry is insulated with three layers of protection from insurer to reinsurer to retrocessional reinsurance. This insulation can help insurers absorb risk and protect their policyholders.

California Sen. Alex Padilla used his questioning to learn more about access to insurance in different communities when it comes to wildfires. Theodorou responded by saying “Others have initiated programs to increase access to mitigating incentives and premium discounts to fortify properties. They need to increase standards based on specifications. As for affordability, means testing should be available for those who cannot afford the cost of the insurance.” 

Finally, Theodorou expanded on the importance and adaptability of modeling to address a question raised by Sen. Mike Braun of Indiana on the preparedness of responding to and being proactive ahead of future “calamities.” Modeling is vital and helpful, but Theodorou stated that “[Models] are trying to keep up, but it’s a moving target since the denominator is always changing.” 

Overall, the hearing was a beneficial conversation that allowed a variety of stakeholders to address and alleviate key concerns some may have when it comes to the insurance industry’s reaction to address growing fears of climate change. Although there were a few somewhat tense exchanges, the hearing highlighted many positive steps the insurance industry is taking to absorb significant climate risk and mitigate these risks in the future.

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