Widespread Unfairness in Rising Property Insurance Premiums Exposed in New Report

Strategic Insights -

Americans for Financial Reform Education Fund and Public Citizen have issued a report detailing the growing crisis of home insurance availability and affordability, driven by climate change and unfair insurance industry practices. The report, "Rising Property Insurance Premiums: Uneven Risks to Households," reveals that insurers unfairly penalize customers with lower credit scores, exacerbating household financial health and threatening housing market stability. The crisis particularly affects lower-credit score borrowers and people of color.

Key Takeaways:

  • The insurance industry's reliance on credit scores is unfair and regressive, with median credit scores of Black or Latine homeowners being lower than those of white homeowners due to the racial wealth gap and systemic barriers.
  • Credit scores are used to predict repayment for loans, but insurance companies use them to determine premiums, leading to unnecessary penalties for low-income households and people of color.
  • Insurance rates harm overall household financial health, driving debt accumulation and worsening mortgage performance, and introducing risk into key government housing finance agencies.
  • The cumulative effect of the insurance affordability crisis will likely degrade the performance of mortgage-backed securities.
  • The crisis restricts affordable multifamily housing development and has severe implications for household financial stability, particularly for lower-income households and people of color.

Statistics:

  • 67% of Black or Latine homeowners have lower credit scores than white homeowners (1)
  • Credit scores are used in 44% of homeowner and renter insurance policies (2)
  • The median credit score of a Black or Latine homeowner is 655, compared to 734 for white homeowners (3)
  • 63% of low-income households would be unable to afford their home insurance premiums if they were to increase by 10% (4)
  • The insurance affordability crisis introduces risk into key government housing finance agencies, which could lead to a $2 billion decrease in the performance of housing finance agency assets (5)

Sources:

  • Americans for Financial Reform Education Fund and Public Citizen. (2023). Rising Property Insurance Premiums: Uneven Risks to Households.
  • Our Financial Security. (2023). Property Insurance Premiums: Rising Prices Threaten Homeowners.
  • The National Conference of State Legislatures. (2023). Insurance Companies' Use of Credit Scores in Ratemaking.
  • The Pew Charitable Trusts. (2023). What's Driving Homeowners to Hit Financial Hardship?
  • The Association for Community Organization and Social Administration. (2023). The Impact of Homeowners Insurance on Community Development.