House Financial Services Subcommittee Issues Testimony From American Property & Casualty Insurance Association Senior VP Gordon (Part 2 of 2)

WASHINGTON, Nov. 13 -- The House Financial Services Subcommittee on Housing and Insurance issued the following testimony by Robert Gordon, senior vice president for policy, research and international of the American Property and Casualty Insurance Association, involving a hearing on Nov. 2, 2023, entitled "The Factors Influencing the High Cost of Insurance for Consumers":

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(Continued from Part 1 of 2)

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SOLUTIONS TO MARKET DISRUPTIONS

The insurance market disruptions seen in some states can be alleviated by regulators allowing rates to adequately and accurately reflect risk in a timely manner. Beyond helping assure a stable insurance market, accurate risk-based pricing is reflective of comparative exposure to risk. Accurate insurance pricing of risks helps society recognize and address the true costs.

Longer-term solutions are also essential to effectively address the underlying cost drivers for losses. The deteriorating loss situation is felt most directly by impacted communities and households, but its financial impacts are also borne by insurers and government. And we all share the urgent need to reduce those losses by working together to mitigate risk and increase resiliency, address legal system abuse through meaningful tort reform, and resolve regulatory constraints that contribute to insurance market dysfunction.

To help make communities more resilient, insurers advocate for stronger and better enforced building codes, improved land use planning to reduce the accumulation of assets in high-risk areas, retrofitting existing homes and infrastructure, and improved land use management to reduce risk for wildfires.53 Our website provides extensive information on catastrophes for insurers and the public and includes specific resources for consumers on what they can do to protect their home from various types of natural disasters, available at www.apci.org/catastrophe.

Building Codes and Land Use Planning While individual owners can take important steps to mitigate risk at their property, widespread adoption of community-level mitigation measures, including stronger building codes and better land use planning, is needed to reduce the increasing risks from natural disasters.

There is tremendous opportunity to better support risk reduction and climate resilience in both new and existing buildings. The National Institute of Building Sciences (NIBS) has shown that every $1 spent on natural hazard mitigation in new code construction can save up to $11 in disaster repair and recovery costs. FEMA's report "Building Codes Save: A National Study" shows that compliance with modern building codes leads to major reductions in property losses from natural disasters. NIBS' and Fannie Mae's Resilience and Incentivization Roadmap 2.0 explores investment opportunities by lenders, insurers, developers, owners, and government entities that will help Americans prepare for and respond to natural disasters by making the business case for resilience.

51 https://www.citizensfla.com/documents/20702/93064/20230630+Business+Overview.pdf/115af816-1ba7-a5e4-acda9eaad0895449?t=1694458730480.

52 https://www.eenews.net/articles/growing-storms-push-shrinking-la-insurers-into-failure/.

53 See also, the GFIA report on "Global protection gaps and recommendations for bridging them", March 2023 (recommending disaster prevention and adaptation measures such as land-use or building codes and not incentivizing rebuilding in high-risk areas).

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The insurance industry-funded Insurance Institute for Business & Home Safety (IBHS) performs science-based building safety research that leads to real-world solutions for home and business owners, helping to create more resilient communities. Based on decades of research, IBHS developed FORTIFIED, a voluntary program that certifies homes, commercial buildings, and multifamily housing to enhanced construction standards that provide additional protection from severe weather. As more communities are built or renovated to higher standards, this should result in a meaningful decrease in losses, which should translate to more affordable and available coverage for consumers.

Wildfire Resiliency and Mitigation

In 2022, IBHS launched Wildfire Prepared Home(TM), a voluntary certification program designed to reduce wildfire risk. Like IBHS' FORTIFIED program, Wildfire Prepared Home helps homeowners protect their homes through evidence-based home hardening and defensible space techniques. These actions can help reduce vulnerabilities to heat, flames, and embers that often lead to a total loss when a home ignites. Launched initially in California, Wildfire Prepared Home plans to expand to additional states, though homeowners in any state can still benefit from following the program requirements.

The Wildland Fire Mitigation and Management Commission's recent report to Congress54 highlights changes needed in the Federal Government's approach to reducing catastrophic wildfire risk. The report includes recommendations organized around seven key themes: urgent new approaches, supporting collaboration, shifting from reactive to proactive, enabling beneficial wildfire, supporting and expanding the workforce, modernizing tools for informed decision-making, and investing in resilience. The insurance industry was represented on the Commission and looks forward to working with Congress to help advance legislation geared toward implementing the Commission's findings.

Supporting Resilient Communities and Infrastructure

In addition to helping to mitigate the risks of wildfire, the Federal Government plays a key role in supporting community resilience. FEMA's Hazard Mitigation Assistance (HMA) Grants program includes three key hazard mitigation funding programs that are intended to help break the cycle of disaster damage, reconstruction, and repeated damage. The Building Resilient Infrastructure and Communities (BRIC) and Flood Mitigation Assistance Program (FMA) are designed as pre-disaster mitigation programs, while the Hazard Mitigation Grant Program (HMGP) provides post-disaster funding assistance.

In addition to these and similar programs, NOAA's Community-Based Restoration Program and National Coastal Resilience Fund, a public-private partnership, offer funding for natural infrastructure in coastal communities. And HUD's Community Development Block Grant (CDBG), CDBG-Disaster Recovery, and CDBGMitigation programs offer support for vulnerable communities and disaster areas.

The American Society of Civil Engineers (ASCE) assigned a grade of C- to the physical condition and performance of U.S. infrastructure in 2021 and estimates an investment gap of $2.59 trillion over the next ten years. In addition to old age and poor physical condition of U.S. infrastructure, urban population growth is stressing some systems beyond their intended capacities. To help solve some of these infrastructure challenges, ASCE highlights the importance of using new approaches, materials, and technologies to increase our nation's resilience to natural disasters, including the combination of gray, green, and natural infrastructure.

Insurers support a comprehensive risk mitigation strategy that incorporates many different approaches. Insurers have also supported dozens of federal bills introduced in Congress that would increase resiliency and help reduce losses. For example, APCIA has been strongly supporting bills such as The Community Disaster Resilience Zones Act (CDRZ) of 2022, The Strengthening Homes and Eliminating Liabilities Through Encouraging Readiness (SHELTER) Act, and The Disaster Mitigation and Tax Parity Act. We call on Congress to prioritize the passage of legislation to help build the resiliency of communities and property owners.

54 https://www.usda.gov/sites/default/files/documents/wfmmc-final-report-09-2023.pdf.

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Financial Literacy and Empowerment

Insurance plays an essential role in protecting consumers and communities from catastrophic loss as well as sending societally beneficial market-based risk signals. Accurate risk-price signals promote economically viable decisions across the economy, especially when building in areas prone to catastrophic weather. Unfortunately, insurance products are sometimes misunderstood by consumers, potentially leaving them vulnerable to a major loss. Insurance companies continue to work hard to educate consumers about the importance of maintaining proper insurance and ways to mitigate risk. This includes providing dedicated insurance professionals to help explain insurance products and coverages, science-informed mitigation strategies, and the claims process. It also involves forging partnerships with government agencies, regulators, and other stakeholders. Organizations such as the Insurance Information Institute (III) also provide extensive information and resources on insurance. The industry is also helping to raise awareness of the negative impacts of legal system abuse and advocating for meaningful tort reform in the U.S.

Insurers' Innovation

Insurers have long adapted to changing market conditions by developing innovative risk transfer mechanisms. Insurers strongly support technology-enabled forecasting, including the use of artificial intelligence (AI) and machine learning (ML), data collection, analysis, and hazard warning and notification systems. To respond to increasing natural disaster losses, insurers must be allowed to use forward-looking models to project evolving risks in a changing climate. Catastrophe (cat) models are updated using data from recent events and are fairly accurate in predicting risks over the period most property contracts are written (12 months). In some states, insurers are prohibited from using cat models to set rates, and are required by law to use historical averages, which masks recent loss trends.

Newer product offerings such as parametric (or index-based) insurance provide risk transfer beyond traditional insurance. Parametric insurance provides coverage against a predefined event happening that meets certain parameters or an objective index value, regardless of the actual loss sustained. While technology is affording new opportunities for parametric-style insurance products at the consumer level, parametric contracts are meant to supplement rather than replace traditional insurance coverage or to provide limited risk protection in instances where traditional insurance is unavailable. Insurers also offer products that support the energy transition, including policies for renewable energy projects and technologies, sustainable buildings and infrastructure, and fuel-efficient cars and electric vehicles.55

55 APCIA developed a white paper entitled Energy Resource and Insurer Roles During the Energy Transition (August 2022) at https://www.apci.org/attachment/static/6731/.

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REGULATORY CONCERNS

Insurance in the U.S. is heavily regulated at the state level, with insurance departments responsible for reviewing and approving rates and terms to ensure they are fair for consumers and support a healthy insurance market. Insurers are also increasingly subject to a complicated array of international and federal mandates, such as climate-related risk disclosures, which create confidentiality and materiality concerns and restrict insurers' ability to conduct normal business operations.

Federal Insurance Office (FIO)

In late 2022, the Federal Insurance Office (FIO) solicited feedback on a proposed data call that would collect insurers' historical underwriting data on homeowners insurance. FIO intends to use the data in its efforts to assess climate-related financial risk and the potential impacts of climate on insurance availability and affordability. APCIA expressed concerns with FIO's approach of imposing a potentially duplicative and costly data call on insurers directly. FIO is expected to conduct its data call in late 2023 or early 2024. Prior to releasing a data call, FIO is required to consult with state regulators to see if they already have the needed data and if it can be collected within a reasonable timeframe.

In June 2023, FIO released a report titled "Insurance Supervision and Regulation of Climate-Related Risks", describing how state insurance regulators are addressing climate risk. The report contains 20 recommendations for enhancements to solvency, corporate governance, macroprudential oversight, market conduct, and reporting requirements. Some of the recommendations are already being implemented across states, but FIO believes the efforts are fragmented and limited in several ways. These findings are not surprising given that insurance is regulated at the state level to account for unique and important differences in insurance-related issues at the individual state level.

National Association of Insurance Commissioners (NAIC) / States

Last year, through the NAIC, a group of 15 participating states revised the annual climate risk disclosure survey to require more detailed disclosures consistent with the international framework of the Taskforce on Climaterelated Financial Disclosures (TCFD). The NAIC recently announced that a state regulator drafting group is working to develop a new data call to collect homeowners insurance data to meet the Property and Casualty (C) Committee's charge to better understand property insurance markets and insurance protection gaps. The goal will be to develop a long-term, robust data collection strategy to help regulators more nimbly respond to inquiries related to their property markets. The data call is expected to be far-reaching and present significant costs and complications for insurers to comply.

The NAIC's action is considered to be a response to FIO's proposed data collection, and the scope of NAIC's data call, expected to be finalized in late November, will likely inform FIO's data collection effort. APCIA is working with both parties to try and prevent dueling data calls from the NAIC and FIO, as well as urging the NAIC to collect data in the most efficient way possible and focus on data that can be gathered by statistical agents and data aggregators. APCIA has continuously raised with the regulatory community a longstanding concern about the plethora of data calls and lack of coordination on data calls among various bodies.

SPECIFIC STATE ISSUES

California

Over the last decade (2012-2021), NAIC data shows that the claims costs and expenses for total property casualty insurance in California were $100.60 for every $100 of premium collected to cover all claims costs and expenses across all lines of business.56 This translates into an overall underwriting loss of -0.6 percent over the last decade, compared to a profit of 2.0 percent for property insurance countrywide. In simple terms, it costs more to cover a claim in California than insurers collected in premium.

The same NAIC report shows that homeowners insurance claims costs and expenses in California for the same decade were $113.10 for every $100 collected in premium, resulting in an underwriting loss of -13.1 percent, versus a 3.6 percent profit countrywide. While insurers have managed an underwriting profit in California during some individual years with no severe weather events, insurance rates need to include a catastrophe load based on actuarial analysis and catastrophe modeling to collect enough premium for the periodic extreme loss events, including wildfires and floods. California experienced multiple catastrophic wildfires in 2017 and 2018 that caused record insured losses, wiping out underwriting gains from the remainder of the decade. The following table lists the underwriting profits (in black) and losses (in red) for homeowners, commercial multi-peril, and total property casualty insurance over the last decade for California and countrywide. To avoid confusion with other references to "CW" in this letter, "CW" as used in the table below stands for "countrywide":

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[View table in the link at bottom.]

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The following graph was part of the September legislative briefing by the Rand Corporation entitled "Challenges Facing California's Residential Insurance Market" (August 29, 2023). The graph shows in red the impact of the 2017 and 2018 catastrophic wildfires and related losses on the cumulative underwriting of California homeowners insurers, wiping out more than 30 years of underwriting profits.

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[View chart in the link at bottom.]

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56 Report on Profitability by Line by State in 2021, National Association of Insurance Commissioners 162 (Jan. 2023), (January 2023) at https://content.naic.org/sites/default/files/publication-pbl-pb-profitability-line-state.pdf.

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While California has not suffered catastrophic wildfire insured losses in the last three years, wildfires burned a record number of acres in 2020, the average acres burned per fire has been increasing significantly, and Governor Newsom's recent executive order described further below references the expectation that climate change will result in more frequent wildfires of greater intensity in the future.

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[View chart in the link at bottom.]

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Long-term underwriting losses in California, and the expectation of future escalating losses from increasing natural disaster severity, inflation, and other cost drivers, present a dilemma for insurers that the California Department of Insurance (CDI) Commissioner Lara aptly describes in his press statement: "[I]nsurance companies will not write insurance, especially in high-risk areas, unless they are able to ensure they have the capital and reserves to fully meet all insurance claims submitted by consumers, cover their expenses, and earn a fair return."57

Following the pandemic, during a time of record inflation, insurers experienced a period of more than 30 months with no private passenger auto rate increase approvals by the CDI. The 2022 California personal auto loss ratio was the highest over the last decade at about 80 percent. That is prior to all expenses, ranging from commissions and overhead expenses to claims adjustment expenses (which combined were approximately 35 percent for 2021 according to the 2023 NAIC Profitability Report). While the CDI resumed auto rate approvals in late 2022, rate and filing reviews continue to show delay. "Requested rates" are often negotiated with the CDI, but approvals often come long after initial filings and typically well below the indicated rate need.

All this is taking place when the impact of climate change continues to hammer the state's consumers and businesses. After years of severe drought, the probability of significant floods is increasing from the unusually heavy rain in early 2023 and the likelihood of melting snowpacks to follow. This in turn may exacerbate the risks of catastrophic fires as flood debris and newly fertilized weeds dry out in the summer heat. CDI strongly encouraged and reached an agreement with the FAIR plan to increase its commercial insured limits. However, the FAIR plan already has a large deficit, and the additional exposure increases the chance of significant assessments on private insurers. Any shortfall generated by the FAIR plan will ultimately be paid for by all consumers and businesses in the state.

57 See supra n.6.

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California insurance regulation is currently constrained by an antiquated 35-year-old regulatory system imposed by Proposition 103, predating the dramatically changing insurance landscape. An effort to enact significant insurance reforms by Governor Newsom, California's legislative leadership, and CDI Commissioner Lara during the brief legislative session that adjourned sine die on September 14, 2023, failed. On September 21, 2023, Governor Newsom issued a press statement in which he "urge[d] Insurance Commissioner Lara to take swift action to address issues with the insurance market and expand coverage options . . ."58 His related executive order identified more frequent and severe wildfires and more severe winter storms due to climate change and their related costs as primary contributors to California's failing market.59 It states that the increased exposure to catastrophic weather events, high construction repair costs, and global inflation are primary drivers of insurers' decisions to pull back from the California market. The Governor recognized the regulatory reform efforts of Commissioner Lara but said that "even more must be done to maintain access to insurance for consumers."60

That same day, Commissioner Lara announced his intention to "address problems fueled by climate change" and inflation, which over the years had brought California's insurance market to a "crossroads"61:

The actions [of the Commissioner's office] announced today are aimed at addressing problems fueled by climate change and being experienced by states across the nation including global inflation and increased costs for rebuilding that have led to several insurance companies pausing coverage for writing new homeowners and commercial insurance policies, non-renewing existing consumers, and increasing rates to maintain their financial stability. Unlike public utilities, which are required by law to cover all consumers, insurance companies will not write insurance, especially in high-risk areas, unless they are able to ensure they have the capital and reserves to fully meet all insurance claims submitted by consumers, cover their expenses, and earn a fair return.62

The remainder of Commissioner Lara's press statement outlines the related regulatory steps he is undertaking to stabilize the property casualty insurance market so that coverage is widely available and affordable. Importantly, he concludes with the following: "The current system is not working for all Californians, and we must change course. I will continue to partner with all those who want to work toward real solutions."63 APCIA is committed to working with the CDI and Commissioner Lara on those solutions.

Florida

Even prior to the second largest insured hurricane loss caused by hurricane Ian, the Florida market was challenged by increasing inflation, litigation, and the impact of climate change. Despite having fewer than 7 percent of homeowners' claims in 2021, Florida had 76 percent of the countrywide homeowners' lawsuits.64 A new 1 percent emergency assessment request from the Florida Insurance Guaranty association was approved and will start on October 1.65 This will be the fourth surcharge in the last two years. "The charge follows assessments of 0.7 percent, 1.3 percent, and 0.7 percent as the Florida market has seen 10 property insurer insolvencies in the last two years."66 The property market challenges have resulted in only 15 insurance companies writing over 60 percent of the direct premium.67 At the same time, the premiums of Florida's residual market, Citizens, have almost quadrupled since 2020 to $3.2 billion in 2022.68 Due to some of the large national companies not writing new business or cutting back their book of business, the state's personal property specialty companies account for a growing share of the market, at 37 percent in 2022.69

58 See Governor Newsom Signs Executive Order to Strengthen Property Insurance Market, Office of Governor Gavin Newsom (Sept. 21, 2023), https://www.gov.ca.gov/2023/09/21/governor-newsom-signs-executive-order-to-strengthen-property-insurance-market/.

59 Exec. Order N-13-23 (Sept. 21, 2023), https://www.gov.ca.gov/wp-content/uploads/2023/09/9.21.23-Homeowners-Insurance-EO.pdf.

60 See n. 44.

61 See Press Release, Commissioner Lara announces Sustainable Insurance Strategy to improve state's market conditions for consumers, Cal. Dept. of Insurance (Sept. 21, 2023), https://www.insurance.ca.gov/0400-news/0100-press-releases/2023/release051-2023.cfm.

62 Ibid.

63 Ibid.

64 https://floir.com/docs-sf/default-source/property-and-casualty/stability-unit-reports/july-2023-isu-report.pdf (p.5).

65 https://figafacts.com/assessments/.

66 AM Best: "Short-term pain to precede long-term gain for Florida auto insurers"; April 14, 2023.

67 AM Best: Florida Losses from Hurricane Idalia Are Unlikely To Match Hurricane Ian's, September 1, 2023.

68 Ibid.

69 Ibid.

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[View chart in the link at bottom.]

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The Florida auto insurance market has also been challenging. The ratio of defense and cost containment expenses ("DCCE") incurred to direct premiums earned in the combination of the no-fault and other private auto liability lines was 6.4 percent in 2022, the highest in any state. Florida's DCCE ratio has exceeded that from all other states in each of the past 25 years, with a 2.8-percentage gap in 2022.

Florida passed extensive property insurance reforms in December 2022 and broader insurance and tort reforms in March 2023, including limiting one-way attorney fees and bad faith awards. Those reforms have regenerated significant insurer interest in the Florida marketplace. However, reflecting the litigation environment in the state, almost 300,000 claims were filed right before the effective date of the reforms in an effort to avoid having the lawsuits proceed under the new law.70

Louisiana

Louisiana is exposed to significant natural catastrophe risk and has one of the worst legal system abuse environments in the country. A 2022 report on America's "judicial hellholes" ranked Louisiana seventh, citing litigation, staged accidents, COVID-19 lawsuits, and judicial misconduct as top concerns.71 Ongoing coastal litigation against more than 200 energy companies is a major source of legal system abuse in Louisiana with detrimental effects on the state's economy which include loss of 2,000 jobs worth an estimated $70 million per year in earnings.72

These lawsuits have led to bankruptcies and reduced the state's tax revenue from energy production. Staged accidents involving big rigs in New Orleans and other areas are driving up the cost of auto insurance in the state. Judicial misconduct is also a challenge, with only seven hearing dispositions out of 526 complaints filed against judges and justices of the peace in 2021. Studies have shown that lawsuit abuse and excessive tort claims cost billions of dollars in annual economic activity, costing each resident over $1,000 and the state about 46,000 jobs per year.73

The incoming Louisiana Insurance Commissioner Tim Temple has stated that he supports efforts to amend the state's "bad faith" law that makes it easier for property owners to sue their insurance companies when they encounter problems with their claims.74 The existing law is overly broad and contains harsh penalty provisions. Successful litigants can receive up to 50 percent more money in legal damages than the actual value of their insurance claim, in addition to their attorneys' fees.75 "The Louisiana Association of Business and Industry has also pushed for an overhaul, saying the bad faith clause makes it too expensive to do business in the state, and [Commissioner-Elect] Temple agrees that it deters insurance companies from writing policies in Louisiana."76 The incoming Commissioner also wants to reform Louisiana's unique "three-year rule", which restricts an insurer's ability to non-renew a policy if the insurer has written that insurance policy for three years.77 Legislative attempts to change the three-year rule and the bad faith clause failed earlier in 2023.

70 The Florida Bar: "Comprehensive Tort Reform Spurs Record Filings"; April 6, 2023.

71 https://www.thecentersquare.com/louisiana/report-ranks-louisiana-as-a-judicial-hellhole/article_57877542-7703-11ed-b670-0bc5aa60549d.html.

72 Ibid.

73 Ibid.

74 Louisiana Illuminator: "How incoming Insurance Commissioner Tim Temple wants to change the industry", October 10, 2023.

75 Ibid.

76 Ibid.

77 Ibid.

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OTHER OPPORTUNITIES AND CHALLENGES

Legal system abuse is a significant factor increasing rates in many lines of insurance. Over the five-year period of 2014-2018, the annualized increase in insured losses of commercial auto, product liability, and other commercial liability lines were 10.9, 17.4, and 9.3 percent, respectively.78 These values vastly outpaced an

annualized increase in CPI of 1.5 percent and an increase in GDP of 4.1 percent.

There are many drivers of legal system abuse. For example, lawsuits have become increasingly likely to result in "nuclear" verdicts (verdicts over $10 million dollars), and these exceptionally high jury verdicts -- often exceeding what would be considered reasonable damages -- can threaten a company's viability, causing some organizations to go bankrupt. According to a recent study, the median nuclear verdict increased 27.5 percent over the ten-year study period, far outpacing inflation.79

Nonetheless, the impact of legal system abuse is not limited to nuclear verdicts. Even average verdicts are seeing outsized growth, with a significant increase in ten years. In 2010, average personal injury verdicts were $39,300, and by 2020 they were $125,366. This increase represents a 319 percent increase in these judgments even accounting for a dip at the beginning of the pandemic.

The many drivers of these adverse changes and legal system abuse include: third party litigation financing (TPLF), a deeply opaque and burgeoning $13.5 billion industry in the U.S.; the significant increase in attorney advertising nationwide; the acceleration of phantom damages and medical financing; the ubiquitous use of "reptile" tactics by the plaintiff's bar such as "jury anchoring"; the expansion of statutory damages, such as under wrongful death statutes; and the elimination or inflation of damages caps, among others. The growing crisis has grown so acute that some are drawing unfavorable comparisons to the liability crisis of the 1980s.80

TPLF is a particularly challenging aspect of legal system abuse, as it involves unknown, dark money investments and can be found in consumer, medical financing, as well as business to business (B2B) litigation. Financers are unabashed about what they do. Allison Chock, then with litigation financer Bentham IMF (now known as Omni Bridgeway), stated it plainly - litigation financing makes "it harder and more expensive to settle cases."81

We are also seeing the challenging growth of foreign investment in civil litigation in the U.S. Many leading U.S. litigation financers now have sizeable foreign government investment, including Burford Capital, Fortress Investment, and Therium. This is presenting a growing national security concern as, according to the Wall Street Journal, foreign actors, including foreign governments, are increasingly taking advantage of the flaws in the patent system to target critical U.S. industries.82 A leading TPLF expert has warned "that the China Investment Corporation (CIC), China's Sovereign Wealth Fund, [could] fund a suit against an American company in a sensitive industry such as military technology" and, in the process, "obtain[ ] highly confidential documents containing proprietary information regarding sensitive technologies from the American defendantcorporation." APCIA is encouraging policymakers to consider adopting increased transparency for TPLF in civil litigation.

78 Insurance Research Council, Social Inflation: Evidence and Impact on Property-Casualty Insurance (June 2020) at https://www.insurance-research.org/sites/default/files/news_releases/IRCSocialInflation2020.pdf.

79 US Chamber of Commerce, Institute for Legal Reform, Nuclear Verdicts: Trends, Causes and Solutions, (2022) at https://instituteforlegalreform.com/research/nuclear-verdicts-trends-causes-and-solutions/.

80 Forbes, Today's Liability Crisis and Your Risk Management Options (Dec. 1, 2021) at https://www.forbes.com/sites/forbesbusinesscouncil/2021/12/01/todays-liability-crisis-and-your-risk-management-options/?sh=68fe84521078.

81 Wall Street Journal, Lawsuit Funding, Long Hidden in the Shadows, Faces Calls for More Sunlight (March 21, 2018).

82 Wall Street Journal, Patent Litigation is a Matter of National Security (Sept. 11, 2022) at https://www.wsj.com/articles/patent-litigation-is-a-matter-of-national-security-chips-and-science-act-intellectual-property-theft-lawsuit-technology-scammers-manufacturing-11662912581

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CONCLUSION

The property casualty industry is solvent but facing rapidly escalating loss costs, particularly in the property and auto insurance lines. Losses are being driven by the increasing accumulation of asset values in regions vulnerable to higher risk of natural catastrophes, economic inflation, climate change, legal system abuse, and regulatory delays in approving rate filings, and coverage mandates. Particularly in states where challenges persist with rate filing approvals, rates have lagged far behind losses, resulting in record loss ratios and causing severe net underwriting losses.

The consequence of the rapid escalation of losses beyond insurance premiums collected caused a contraction in the industry's capital last year, while the lack of profitability has made it extremely difficult for insurers to attract sufficient additional investment capital to meet increased coverage demands. Many insurers have had to pull back from coverage exposures, resulting in availability challenges for consumers. Some states have reacted by expanding significantly underpriced residual markets or trying to mandate subsidized coverages. Those actions can create a further death spiral in the markets while creating subsidies that mask socially beneficial driving-risk and environmentally friendly climate-risk signals.

Insurance availability can be best improved by allowing competitive private markets to actuarially price risk according to expected costs, while reducing government rate suppression and policy form constraints. Insurance affordability is best addressed through improved mitigation and resiliency programs. APCIA has identified dozens of such state and federal programs that would help consumers and make their insurance more affordable.

Insurers' core business is protecting people and helping them recover from catastrophic losses to their homes, cars, and businesses. Insurers remain committed to our policyholders and American consumers. But insurance markets are facing very strong challenges that will require strong leadership to overcome. APCIA is ready and willing to work with state and federal regulators and policymakers on reforms.

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View original text, plus charts here https://docs.house.gov/meetings/BA/BA04/20231102/116528/HHRG-118-BA04-Wstate-GordonR-20231102.pdf