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The National Association of REALTORS® (NAR) engaged Milliman, Inc. to conduct an actuarial analysispdf on the feasibility of creating a new federal insurance program that would cover all natural catastrophe perils, including floods, earthquakes, hurricane winds, tornadoes, hail, and wildfires.

Topline Study Results:

  • Establishes a new federal disaster fund of $122.5 billion per year to cover floods, earthquakes, wildfires, and windstorms across the United States.
  • Increases insurance costs for approximately 98% of homeowners.
  • Requires expanding the federal mandatory purchase requirement to include both flood and earthquake insurance in high and low-risk areas nationwide.

The Concept: 

For decades, Congress has considered creating a federal insurance program for all natural catastrophe perils. The goal is to build a federal disaster fund large enough to make home insurance affordable across the U.S. by broadening the base of insurance rate payers. However, NAR was not aware of any comprehensive study that examines the costs and benefits of cross-subsidizing natural catastrophe perils in this manner. Therefore, NAR engaged Milliman, Inc. to conduct the first-ever nationwide actuarial analysis of a National Disaster Insurance Program.

Milliman Study Findings:

Pros: 

  • Ensures the availability of home insurance for floods, earthquakes, windstorms, and wildfires nationwide.
  • Reduces insurance costs for 2% of homeowners under an expansion of the National Flood Insurance Program to cover earthquake risk as well.

Cons:

  • Requires 98% of homeowners to pay more for insurance.
  • Raises the average home insurance cost in the 48 states included in the study.
  • Encourages more homeowners to build or stay in high-risk areas, as their decisions are subsidized by others.

NAR Policy:

NAR supports the development of federal disaster policies that meet the following principles:

  • Emphasize pre-disaster prevention, preparedness, and proactive risk reduction, while also including post-disaster emergency assistance.
  • Promote private insurance markets to assume more risk.
  • Align premiums with property-specific risks without major surcharges, assessments, or cross-subsidies.
  • Encourage higher building codes and ordinances to avoid costly property damage.
  • Provide pre-disaster mitigation assistance to current homeowners.
  • Ensure full transparency, disclosure, and mapping for informed real estate decisions.

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 across the entire U.S. population.

For additional information, please contact NAR staff member Austin Perez at APerez@nar.realtor.

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