States are facing a double whammy—rising disaster relief costs due to an increasing number of extreme weather events and limited or, in some cases, withdrawn insurance coverage for high-risk areas.
The National Conference of State Legislators explains: “On average, the frequency of . . . billion-dollar weather events in the last five years has increased by 130% compared with previous decades . . . [and] the staggering economic and social consequences of disasters can impact . . . state[s] for months or years to come.”
In particular, Florida, Louisiana, Texas, and parts of California are “now experiencing stress in their property insurance markets,” according to NCSL—and, in some cases, “recent storms have pushed dozens of insurers into bankruptcy.”
And it isn’t only higher premiums that households must bear. NRDC warns that “the withdrawal of insurers from high-risk areas is a disaster in itself, since homeowners need coverage to . . . stay compliant with mortgage lenders.” Furthermore, NRDC emphasizes that “[w]hen private insurers withdraw, homeowners turn to state-run programs at a massive cost to taxpayers.”
The problem is compounded by federal policy proposals that the Council of State Governments notes include “raising the threshold for federal disaster assistance” and “leaving more planning and recovery to states.”
In response to the shifting insurance landscape, states are exploring a range of approaches. Front and center are efforts to incentivize homeowners to fortify or strengthen their houses with roof retrofits and other resiliency-increasing measures.
The focus on housing fortification incentives is understandable given the damage-reducing potential. North Carolina State University, for instance, found that houses with fortified roofs were associated with roughly 35% fewer post-hurricane claims as compared to those with standard roofs, and the claims were more than 20% less severe. And the Alabama Department of Insurance estimates that post-Hurricane Sally claims were reduced by 55 to 74% and loss severity by 14 to 40% depending on the specific fortification measures implemented.
Some states determine the types of strengthening measures that are eligible for their incentive programs. For instance, New York’s Resilient Retrofit program provides low-interest loans and grants for a specified set of flood-resilience measures.
Many states, however, including North Carolina and Alabama, rely on the Insurance Institute for Business & Home Safety’s FORTIFIED program standards. The science-based certification standards for construction and re-roofing increase the resiliency of houses over and above compliance with standard building codes. They include measures such as installing stronger roof edges to help prevent the wind from ripping off roofs.
States commonly provide incentives through either stand-alone programs or their state-sponsored insurance plans, which offer coverage to homeowners who cannot obtain private insurance. In some states, however, incentives are offered through public-private partnerships. For example, the Alabama Department of Insurance collaborated with the insurance industry to establish its Strengthen Alabama Homes program.
In addition, some states impose requirements that ensure insurers pass on loss-reduction savings to homeowners. Examples include California, which requires insurers to offer premium reductions to households that adopt qualifying wildfire risk reduction measures, and South Carolina, which requires premium discounts for measures that strengthen coastal houses.
States fund their incentive programs in a variety of ways including commonly through state appropriations. In contrast, some programs, such as the Strengthen Oklahoma Homes program, are funded by the insurance industry.
The types of incentives offered include grants, tax incentives, discounts on insurance premiums, and insurance endorsements.
Numerous states offer grants for strengthening homes against various types of extreme weather events. For example, the My Safe Florida Home program provides homeowner grants up to $10,000 for upgrades identified through free inspections.
Grant amounts vary and may not cover the full cost of fortification measures. For example, the Louisiana Department of Insurance reports that participants in its program spent on average over $16,000 to install a FORTIFIED standard roof—a cost significantly higher than the maximum state grant of $10,000.
In addition to grants, some states provide tax credits, including South Carolina, which offers an income tax credit for up to 25% or $1,000 (whichever is less) of costs incurred in retrofitting houses to increase storm resiliency. Discounts on insurance premiums are another home-strengthening incentive. Participants in the Louisiana Fortify Homes program, for example, are estimated to have saved over $1,200 per year on insurance premiums. Other states, such as North Carolina, provide endorsements or amendments to insurance policies that may provide coverage for costs incurred in repairing and upgrading roofs after extreme weather events.
Fortification incentives alone will not ward off the (literal and figurative) storms on the horizon but nevertheless offer a ray of hope to homeowners and insurers alike.