Treasury Department launches assessment of how extreme weather is increasing insurance rates

An emergency clean-up and repair worker at homes in in Kissimmee, Florida, after Hurricane Ian.

CNN  — 

The Treasury Department announced on Tuesday it is launching an assessment of worsening extreme weather and its impact on the cost of insurance.

As climate change is making storms stronger and more destructive, Treasury officials told CNN they want to take a hard look at how climate-related disasters are driving up insurance rates around the country.

The department’s Federal Insurance Office is requesting zip-code level data from US insurance companies regarding their policies and prices. This is the first time the department has used its authority under the Dodd-Frank Act to ask insurance companies for such high-resolution data on its policies.

Treasury intends to combine that information with climate data to “assess the potential for major disruptions of private insurance coverage in regions of the country that are particularly vulnerable to the impacts of climate change,” according to a news release.

Insurance companies are regulated by the states and Treasury officials have been receiving some data from state regulators. But what’s lacking is consistent and granular data that federal and state officials can use to understand how climate change is impacting insurance risk and rates, officials told CNN.

“We need a consistent, comparable granular set of data in order to understand the scale and scope of the problem and the risks we’re facing,” said Assistant Secretary for Financial Institutions Graham Steele. “The goal here is to get a granular, zip-code level picture of what’s happening and where, and what the impacts are on households and on the economy and financial system writ large.”

The data could ultimately be used to determine whether changes are needed in the US insurance market, Treasury officials told CNN, which has been reeling from back-to-back years of intense hurricanes in the Eastern US and wildfires in the West.

Even before Hurricane Ian slammed into Florida, homeowners in the state were paying three times the national average for their insurance premiums, CNN has reported – $4,231 a year, compared to a US average of $1,544, according to report from the Insurance Information Institute. Six insurers in Florida have gone insolvent this year, pulling out of the market and canceling their customers’ policies, leaving property owners with fewer and more expensive insurance options as they look to rebuild.

And much of the damage caused by Hurricane Ian and other tropical storms comes from flooding, which is not covered under standard homeowners’ policies and is primarily covered only by the National Flood Insurance Program run by FEMA. Hurricane Ian caused an estimated $17 billion of uninsured flood damage according to an estimate from CoreLogic, which estimates losses from natural disasters.

Treasury’s data collection could bring new transparency to an opaque market that millions of Americans rely on to insure their homes against weather-related risks, one expert said.

“We will see how brittle and unstable these markets are and really how arbitrary the pricing is at the end of the day,” Jesse Keenan, a professor of sustainable real estate at Tulane University’s School of Architecture, told CNN. “The scale of [climate change] and its impacts are so great; they’re extending beyond state borders.”

Treasury Secretary Janet Yellen said in a statement that Tuesday’s announcement “is an important step in determining how Americans are being affected by the increasing costs of climate change.”

“The recent impacts in Florida from Hurricane Ian demonstrate the critical nature of this work and the need for an increased understanding of insurance market vulnerabilities in the United States,” Yellen said.

Treasury is requesting public comments on the proposed data collection before it moves forward with the project.

This story has been updated with additional information.