NAR Brief: Natural Catastrophe Perils Insurance

The National Association of REALTORS® (NAR) engaged Milliman, Inc., to conduct an actuarial analysis of all catastrophe perils insurance as an alternative to the National Flood Insurance Program (NFIP).

Topline Study Results:

• Builds an insurance fund with an annual cost of $85 billion to pay for floods, earthquakes, windstorms and wildfires.
• Reduces the insurance cost for 2 percent of homeowners while raising the cost for 98 percent.
• Requires a federal all cat perils insurance mandate and an annual cost averaging over $1,200 per homeowner.

“All Cat Perils” Concept: 

For decades, many have proposed to build a federal insurance fund to cover multiple catastrophe perils by broadening the base of ratepayers beyond the NFIP.  The goal is to provide a larger claims pool that would benefit more property owners without adding significant costs.  Milliman was hired to quantify the impacts of an all cat perils program under multiple scenarios.

NAR policy:

Opposes major surcharges, assessments or cross subsidies from some property owners to others.

Milliman Study Findings:

Pros: 

• Ensures full home replacement coverage for fire, earthquake, wind and water damage.
• Reduces insurance costs for 2 percent of homeowners, who currently have an NFIP policy.

Cons:

• Increases insurance costs for the other 98 percent of homeowners in 48 contiguous states.
• Costs $200 annually per person if the program is subsidized by the entire population of the U.S.
• Distributes a majority of the claim payments to just four states regardless of subsidization.

Other Considerations:

• Requires some homeowners to pay unaffordable premiums so others can pay more affordable premiums.
• Potentially increases taxpayer exposure as disaster aid currently costs about $4 billion per year.
• Encourages more homeowners to locate in harm’s way if their insurance is subsidized by others.

Methodology: 

NAR commissioned Milliman, Inc., to conduct the first nationwide actuarial study of “all cat perils” insurance for single-family owner-occupied homes in the 48 contiguous states. Catastrophe modeling included floods, earthquakes, hurricane winds, severe convective storms (tornadoes, hail, and straight-line winds) and wildfires. Milliman estimated the cost of an all cat perils program under multiple funding scenarios, including cross-subsidizing by adopting a national average rating methodology and spreading the cost to the entire U.S. population.

Please contact NAR staff Austin Perez at APerez@nar.realtor for additional information.