GAO study regarding insurance for wildfire damage

(a)

Study

The Comptroller General of the United States, in consultation with the Director of the Federal Insurance Office and State insurance regulators, shall conduct a study to analyze and determine the following: (1)

Risk assessment

The extent and nature of wildfire risk in the United States, including— (A) identifying trends in declarations for wildfires under the Fire Management Assistance grant program under section 420 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5187), with respect to geography, costs, probability, and frequency of wildfire disasters; (B) identifying mitigation practices that would assist in reducing costs and risks for insurance policies covering damages from wildfires; (C) identifying existing programs of the Federal Government and State governments that measure wildfire risk and assess the effectiveness of those programs in forecasting wildfire events and informing wildfire response; and (D) analyzing and assessing the need for a national map for measuring and quantifying wildfire risk. (2)

Existing state of coverage

With respect to the existing state of homeowners insurance coverage and commercial property insurance coverage for damage from wildfires in the United States— (A) the extent to which private insurers have, during the 10-year period ending on the date of enactment of this Act, adjusted rates, policyholder cost-sharing provisions, or both for those coverages (after adjusting for inflation) and the geographic areas in which adjusted rates, policyholder cost-sharing, or both have increased; (B) the extent to which private insurers have, during the 10-year period ending on the date of enactment of this Act, declined to renew policies for those coverages and the geographic areas to which those declinations applied; (C) the events and economic factors that have contributed to any increased rates described in subparagraph (A) and declinations to renew policies described in subparagraph (B); (D) in cases in which private insurers have curtailed the overall wildfire exposure of those insurers, the extent to which homeowners insurance coverage and commercial property coverage were terminated altogether and the extent to which those coverages are still offered but with coverage for damage from wildfires excluded; and (E) the extent to which, and the circumstances under which, private insurers are continuing to provide coverage for damage from wildfires— (i) in general; (ii) subject to a condition that mitigation activities are taken, such as hardening of properties and landscaping against wildfires, by property owners, State or local governments, park or forest authorities, or other land management authorities; and (iii) subject to any other conditions. (3)

Regulatory responses

With respect to actions taken by State insurance regulators in response to increased premium rates, policyholder cost-sharing, or both for coverage for damage from wildfires, or the exclusion of that coverage from homeowners insurance policies— (A) the extent to which States have leveraged their respective authorities to regulate rate increases; (B) the extent to which States have enacted any moratoria on those rate and policyholder cost-sharing increases or exclusions and on non-renewals; (C) the extent to which States require homeowners insurance coverage to include coverage for damage from wildfires or make sales of homeowners insurance coverage contingent on the sale, underwriting, or financing of separate wildfire coverage in the applicable State; (D) the extent to which States have established State residual market insurance entities, reinsurance programs, or similar mechanisms for coverage of damages from wildfires; (E) any other actions States or localities have taken in response to increased premium rates, policyholder cost-sharing, or both for coverage for damage from wildfires, or the exclusion of that coverage from homeowners policies, including forestry and wildfire management policies and subsidies for premiums and cost-sharing for wildfire coverage; (F) the effects of actions taken by States on the availability, coverage level, and affordability of homeowners insurance coverage; and (G) the effectiveness and sustainability of actions described in subparagraphs (A) through (F) taken by States. (4)

Challenges in underwriting wildfire risk

With respect to the challenges faced by private insurers underwriting wildfire risk, what is or are— (A) the correlated risks and the extent of those risks; (B) the factors affecting the extent of the ability of private insurers to estimate the magnitude of future likelihood of wildfires and of expected damages from wildfires; (C) the effects of the need to increase more affordable housing options, which may contribute to increased homebuilding in more remote, heavily-wooded areas with higher wildfire risk; (D) the potential for wildfire losses sufficiently large to jeopardize the solvency of insurers; (E) the extent to which, and the areas in which, risk-adjusted market premiums for wildfire risk limit the affordability or availability of coverage for consumers; (F) the effects of various existing and potential State and Federal Government responses to help address those challenges and mitigate wildfire risk, including actions such as— (i) improved forest management policies; (ii) obtaining improved data to estimate risk; (iii) relocating homeowners from wildfire zones; (iv) offsetting a portion of the charged risk-adjusted premiums of insurers with means-tested government affordability programs for lower income homeowners; (v) encouraging the increased use of private reinsurance and other risk-sharing mechanisms by insurers to better diversify wildfire risk; and (vi) developing programs that offset the costs of wildfire risk for consumers and industry; (G) the available policy responses if private insurers exit the wildfire coverage market and the potential advantages and disadvantages of each such response; (H) the effects of the availability and affordability of wildfire coverage, policyholder cost-sharing, or both, on— (i) local communities that are disproportionately vulnerable to wildfires, including on low- or moderate-income property owners and small businesses; (ii) rebuilding in communities previously damaged by wildfires; (iii) the availability and affordability of housing supply; and (iv) the demand for wildfire insurance coverage by property owners; (I) the effects of potential State prohibitions on the termination of policies due to wildfire claims on insurer solvency; and (J) the manner in which private insurers are modeling or estimating future wildfire risk. (b)

Report

Not later than 1 year after the date of enactment of this Act, the Comptroller General of the United States shall submit to Congress a report identifying the findings and conclusions of the study conducted under subsection (a).