CONTACT: Jarice Thompson, jarice@ourfinancialsecurity.org
New Report Exposes Widespread Unfairness of Rising Property Insurance Premiums
Washington, D.C. — The escalating crisis of home insurance availability and affordability, driven by climate change and extractive and unfair insurance industry practices, is undermining household financial stability especially for lower-credit score borrowers and people of color, according to a new report from Americans for Financial Reform Education Fund (AFREF) and Public Citizen.
The report, Rising Property Insurance Premiums: Uneven Risks to Households, details how insurers unfairly penalize customers with lower credit scores, how those penalties worsen household financial health, sketches out both actual and potential implications for the housing market stability, and identifies emerging insurance accessibility challenges for multifamily housing development.
“We are witnessing the breakdown of a market vital to our housing system. And due to deliberate inequity in the insurance rate setting process, many lower income households and people of color are facing a penalty that is disconnected with their actual level of risk,” said Caroline Nagy, associate policy director for housing at AFREF. “The idea that raising prices alone will somehow allow the market to self-correct—and for millions of people to simply move out of harm’s way— is pure fantasy. State insurance commissioners and elected officials need to be hyper-focused on bringing home insurance prices down for current and future homeowners and renters through investments in climate mitigation and resilience instead.”
“Beach-front vacation homeowners should not be paying less for insurance than a low-income family in a home with minimal risk,” said Carly Fabian, senior insurance policy advocate with Public Citizen’s Climate Program. For too long, insurance companies have been treated like omniscient statistical gods, with premiums presumed to reflect the precise realities of risk. Blind faith in actuarial fairness creates real-world consequences for communities already burdened by systemic injustice. The insurance industry’s continued insistence on using the crutch of credit scores, which merely reinforces an unjust status quo, should call into question insurers’ ability to fully translate risk into a single price. It’s time to not only end the use of credit scores for insurance pricing but also to insist on public oversight of insurance rates.”
The report analyzes the literature, key research, and other data, and highlights the widespread problems in the home insurance industry affecting consumers and investors:
- Credit scores are being used in unfair, particularly regressive, ways, unconnected to households’ actual level of disaster risk.
- The median credit score of a Black or Latine homeowner is lower than that of a white homeowner due largely to the racial wealth gap, systemic barriers, and racialized predatory strategies by lenders.
- Credit scores are typically used by consumer financial companies to predict repayment for loans or credit-related products. However, insurance companies are not in the business of projecting repayment. If a policyholder does not pay their insurance premium, the insurer simply cancels the policyholder’s coverage.
- Insurance rates are harming overall household financial health and driving debt accumulation and worsening mortgage performance.
- The insurance affordability crisis is introducing risk into the key government housing finance agencies.
- A cumulative effect will likely be to degrade performance of mortgage-backed securities.
- The insurance affordability crisis is also restricting affordable multifamily housing development.
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