Preamble. 

Insurance is a crucial financial safety net for both individuals and businesses in America, and a buttress to the wider economies of cities and states. It is generally a prerequisite to such basic activities as driving a car, owning a home or starting a business. Consequently, and because insurance is primarily regulated at the state level, state officials have a public policy interest in fostering the affordability and availability of this essential financial service. In addition, financial literacy and consumer education about risk mitigation, insurance options and the consequences of living in high-risk areas can help support more resilient communities and informed decision-making.   

Affordability is Best Fostered Through Free-Market Rate Competition. 

Regulators may be tempted to treat insurance like a utility, because it’s a necessity for most. But unlike utilities, insurance companies don’t operate with a monopoly. In a healthy insurance market, consumers can freely choose the best combination of price and value from among the many providers vying for their business. While regulators have a duty under state law to ensure that rates are not “excessive, inadequate, or unfairly discriminatory” based on sound actuarial principles, the best approach for promoting affordability of insurance is to allow insurers to vigorously compete with each other for customers on price. Accordingly, states should avoid overly restrictive regulation of rating factors and rates, including artificial rate suppression or lengthy delays in rate and product approvals. 

Availability Depends on Risk-Based Pricing and Underwriting Freedom. 

As much as consumers care about affordability, availability is even more fundamental. The least affordable policy is the one that can’t be found at any price. Insurance companies, as for-profit enterprises, will prudently avoid markets where they see little prospect of a reasonable return on capital. When few or no insurers participate, the resulting market failure can negatively impact the broader economy, particularly when it comes to business or property insurance. Various factors can contribute to such a market failure, many of which could be addressed at least in part by sound public policy. But none are as significant as regulatory impediments to an insurer’s ability to (1) accurately price its products based on actual underlying costs and best estimates of future claim payments (risk-based pricing), and (2) prudently select the risks it will insure (underwriting freedom).  

Inadequate rates and underwriting mandates will eventually pressure insurers to consider whether they can responsibly continue doing business under conditions that are very likely to produce ongoing financial losses or even threaten company solvency (i.e. having sufficient capital to pay claims and remain a going concern). If an insurance carrier withdraws from a market, it increases business risk for insurers that remain and makes it harder for consumers to find an insurer willing to write them a policy. To protect consumers, states should therefore promote insurance regulation that prioritizes insurer solvency and overall market health by enabling risk-based pricing and underwriting freedom. To further support market stability, states should offer flexibility in coverage forms and innovative product design. For example, allowing separate deductibles for wildfire or smoke, parametric solutions, and supplemental policies can help insurers and consumers better manage evolving risks. 

States Should Also Pursue Sound Public Policy Responses to Specific Cost Pressures.  

Even with strong regulatory support for foundational rating and underwriting freedom, cost pressures from various other sources sometimes create affordability or availability challenges in some locales. States should pursue effective public policy responses to these specific problems, rather than attempting to mask them through artificial rate suppression or underwriting mandates. Doing so can reduce such cost pressures and foster greater affordability and availability over time. 

Extreme Weather and Catastrophes. 

• Adequately fund and oversee emergency response agencies to maximize effective protection of life and property, including pre-positioning of disaster response and fire suppression resources during periods of high risk. 
• Adopt and enforce a modern statewide building code, including enhanced requirements for geography-correlated perils such as wind and wildfire. 
• Adequately fund and promote pre-disaster community risk mitigation through infrastructure investment and planning such as flood control and stormwater systems, vegetation and fuels management, and community design standards that increase survivability (e.g. IBHS Wildfire Prepared Neighborhood). 
• Incentivize pre-disaster risk mitigation by funding grant programs that support home hardening, consistent with science-based standards such as IBHS Fortified and IBHS Wildfire Prepared Home, including retrofitting where possible. Creating tax-free catastrophe savings accounts could also help consumers financially prepare for disasters. 
• Remove restrictions under anti-rebating laws for discounts for mitigation devices, such as sensors for detecting water leaks or electrical faults. 
• Preserve insurers’ ability to subrogate (i.e. pursue compensation for damages) against parties responsible for causing wildfires or other catastrophic events. 

Highway Safety. 

• Promote roadway design, traffic regulations and enforcement that demonstrably reduce car accidents and fatalities. 
• Adopt measures to discourage unsafe driver behaviors such as speeding, impaired driving and distracted driving. 

Fraud. 

• Adequately fund law enforcement measures to investigate and prosecute insurance fraud, such as staged car accidents (e.g. “swoop and squat”) or arson. 
• Enact penalties that are meaningful enough to deter future insurance fraud. 
• Support ongoing consumer education about fraud risks and the claims process. This can help reduce the incidence of fraudulent claims and improve overall market health. 

Lawsuit Abuse. 

• Explore fair regulation of Third-Party Litigation Financing.
• Cap non-economic damage awards to reasonable compensation for loss and not a windfall that must be absorbed by insurance industry customers. 
• Allow defendants to introduce evidence of amounts actually paid for medical treatment rather than only the ‘rack rates’ billed but not necessarily owing.  
• Confine concerns about ‘bad faith’ performance of insurance contracts to examination and enforcement by regulators rather than courtroom lawsuits. 
• Abolish ‘joint and several’ liability. Parties to litigation should only be liable for harm they proximately caused.  
• Attorney-fee shifting should only be allowed for the most egregious intentional conduct of a defendant and not for ordinary claim issues. 

Regulatory Overreach. 

• Preserve state-based regulation of insurance. Federal involvement should be for international communication and coordination only. 
• Refrain from price controls (such as lengthy prior-approval regimes), underwriting mandates or limits on insurer investments unrelated to solvency regulation. 
• Incorporate reinsurance costs in rate filings to help insurers maintain solvency and attract the necessary capital for markets to weather higher-than-expected catastrophe losses. 
• Preserve insurer access to predictive rating factor data and the use of modern underwriting and rating tools, including probabilistic modeling. 
• Allow insurers to reduce costs through emerging business tools such as photo estimating, aerial imagery, and artificial intelligence. 
• Avoid high-cost, low-value regulatory requirements, such as generating customer-specific detailed notices for all customers regardless of interest, or overly burdensome data calls or examinations when more narrowly-tailored options exist.  
• Refrain from using insurance as a medium for social engineering, such as through ‘bias testing’ and cross-group subsidies.  

Conclusion. 

In closing, it is important to recognize that while federal disaster assistance plays a vital role in supporting communities after catastrophic events, such aid is inherently limited and cannot fully address the long-term challenges of insurance availability and affordability. To truly close protection gaps and foster resilience, we must prioritize the maintenance of a robust and competitive private insurance market. By doing so, we help ensure that individuals and businesses have access to meaningful coverage, reduce reliance on taxpayer-funded bailouts, and strengthen the foundation for sustainable recovery and risk management in the face of future disasters.