[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
HOW MANDATES LIKE ESG DISTORT
MARKETS AND DRIVE UP COSTS
FOR INSURANCE AND HOUSING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HOUSING AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
JULY 14, 2023
__________
Serial No. 118-40
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-379 PDF WASHINGTON : 2026
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HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRENCH HILL, Arkansas, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
TOM EMMER, Minnesota EMANUEL CLEAVER, Missouri
BARRY LOUDERMILK, Georgia JAMES A. HIMES, Connecticut
ALEXANDER X. MOONEY, West Virginia BILL FOSTER, Illinois
WARREN DAVIDSON, Ohio JOYCE BEATTY, Ohio
JOHN W. ROSE, Tennessee JUAN VARGAS, California
BRYAN STEIL, Wisconsin JOSH GOTTHEIMER, New Jersey
WILLIAM R. TIMMONS, IV, South VICENTE GONZALEZ, Texas
Carolina SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina AYANNA PRESSLEY, Massachusetts
DANIEL MEUSER, Pennsylvania STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan
ANDREW R. GARBARINO, New York RITCHIE TORRES, New York
YOUNG KIM, California NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska BRITTANY PETTERSEN, Colorado
MICHAEL LAWLER, New York
ZACHARY NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDREW OGLES, Tennessee
Matthew Hoffmann, Staff Director
------
SUBCOMMITTEE ON HOUSING AND INSURANCE
WARREN DAVIDSON, Ohio, Chairman
MONICA DE LA CRUZ, Texas, Vice EMANUEL CLEAVER, Missouri, Ranking
Chairwoman Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri RASHIDA TLAIB, Michigan
RALPH NORMAN, South Carolina RITCHIE TORRES, New York
SCOTT FITZGERALD, Wisconsin AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York SYLVIA R. GARCIA, Texas
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York STEVEN HORSFORD, Nevada
ERIN HOUCHIN, Indiana BRITTANY PETTERSEN, Colorado
C O N T E N T S
----------
Friday, July 14, 2023
OPENING STATEMENTS
Page
Hon. Monica De La Cruz, Vice Chairwoman of the Subcommittee on
Housing and Insurance, a U.S. Representative from Texas........ 1
Hon. Emanuel Cleaver, Ranking Member of the Subcommittee on
Housing and Insurances, a U.S. Representative from Missouri.... 3
STATEMENTS
Hon. Bill Huizenga, a Member of the Financial Services Committee,
a U.S. Representative from Michigan............................ 2
WITNESSES
Mr. Bill Boor, President & CEO, Cavco Industries, Inc. and Vice
Chairman, Manufactured Housing Institute, on behalf of the
Manufactured Housing Institute (MHI)........................... 5
Prepared Statement........................................... 36
Ms. Alicia Huey, Chairman, National Association of Home Builders
(NAHB) and President, AGH Homes, Inc........................... 6
Prepared Statement........................................... 51
Mr. Jerry Theodorou, Director, Finance, Insurance and Trade, R
Street Institute............................................... 8
Prepared Statement........................................... 60
Ms. Caroline Nagy, Senior Policy Counsel for Housing, Corporate
Power, and Climate Justice, Americans for Financial Reform
(AFR).......................................................... 9
Prepared Statement........................................... 71
APPENDIX
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
Hon. Scott Fitzgerald:
DOE Press Release dated May 18, 2022, ``DOE Updates Mobile
Home Efficiency Standards to Lower Household Energy Bills'' 79
Hon. Maxine Waters:
Written statement of the Private Equity Stakeholder Project
(PESP)..................................................... 83
Written statement of Public Citizen.......................... 87
Williams, Hon. Nikema:
Picture displayed during the hearing......................... 92
RESPONSES TO QUESTIONS FOR THE RECORD
Ms. Alicia Huey:
Written responses to questions for the record from
Representative McHenry..................................... 93
Written responses to questions for the record from
Representative Waters...................................... 95
Ms. Caroline Nagy:
Written responses to questions for the record from
Representative Waters...................................... 96
Written responses to questions for the record from
Representative Nikema Williams............................. 98
Mr. Jerry Theodorou:
Written responses to questions for the record from
Representative Waters...................................... 101
Written responses to questions for the record from
Representative Nikema Williams............................. 101
HOW MANDATES LIKE ESG DISTORT
MARKETS AND DRIVE UP COSTS
FOR INSURANCE AND HOUSING
----------
Friday, July 14, 2023
U.S. House of Representatives,
Subcommittee on Housing and Insurance,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:11 a.m., in
room 2128, Rayburn House Office Building, Hon. Monica De La
Cruz [vice chairwoman of the subcommittee] presiding.
Members present: Representatives Davidson, Luetkemeyer,
Norman, Fitzgerald, Garbarino, Flood, Lawler, De La Cruz;
Cleaver, Velazquez, Tlaib, Pressley, Garcia, Williams of
Georgia, and Pettersen.
Ex officio present: Representative Waters.
Also present: Representative Huizenga.
Ms. De La Cruz. [presiding]. The Subcommittee on Housing
and Insurance will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Today's hearing is entitled, ``How Mandates Like ESG
Distort Markets and Drive Up Costs for Insurance and Housing.''
I now recognize myself for 5 minutes for an opening
statement.
OPENING STATEMENT OF HON. MONICA DE LA CRUZ, VICE CHAIRWOMAN OF
THE SUBCOMMITTE ON HOUSING AND INSURANCE, A U.S. REPRESENTATIVE
FROM TEXAS
The subcommittee has convened today for a hearing entitled,
``How Mandates Like ESG Distort Markets and Drive Up Costs for
Housing and Insurance.'' This hearing is part of the
committee's continuing work this month to investigate the far-
reaching impacts of a new trend in the financial services
world, forced government ESG mandates.
For those who are not familiar with it, ESG is the latest
progressive buzzword for environmental, social, and governance
factors. ESG is a form of virtue signaling where companies can
proclaim how enlightened they are based on their environmental,
social, or corporate governance actions, even if they have to
ignore their fiduciary duty to their stakeholders or decrease
the value of their goods and services to consumers. Those that
give into the ESG movement think that it will make their
company more popular with progressive agitators and investment
companies. Those that do not give in are pilloried and
protested for having the audacity to focus their business, on
their business. Essentially, ESG is, in many cases, a modern
shakedown tool brought to you by today's cancel culture.
Now, some might ask, what is wrong with a company becoming
more involved in environmental, social, or corporate governance
issues and telling their customers about its values? The
problem becomes when ESG is not being offered as a choice, but
as a mandate. ESG mandates, like so many other government
mandates before it, are always offered up as harmless tweaks on
the path towards social enlightenment, free from cost or ill
intent, that will make the markets work better.
Of course, the reality is the exact opposite. Mandates like
ESG distort markets, drive up costs of products, reduce
consumer options, create scarcity, and misalign investment
capital. Made-up metrics, like ESG scorecards, are created to
determine which companies are in the good graces of left-wing
activists. These modern-day social credit systems drive a wedge
within open markets by directing investments to companies that
satisfy progressive demands. Your company's access to capital
should not be dependent on being more, ``woke,'' than your
competitors. The far left should not be able to cancel your
business because you do not comply.
ESG scores and mandates create a social credit system that
makes life harder for American consumers, businesses, and
retirees with little or no discernible benefits. So, today's
hearing will explore the impact of the growing ESG movement on
two different industries, housing and insurance, and what it
means to consumers because ultimately, it is the job of
government regulators to protect customers from collusion and
unfair practices.
With that, I would like to yield 1 minute to my colleague,
Mr. Huizenga.
STATEMENT OF HON. BILL HUIZENGA, A MEMBER OF THE FINANCIAL
SERVICES COMMITTEE, A U.S. REPRESENTATIVE FROM MICHIGAN
Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate the
opportunity to address this subcommittee.
Last year, the Supreme Court ruled in West Virginia v. EPA
that government bureaucracies cannot arbitrarily expand their
own regulatory reach outside of the legal process. This new
form of regulatory activism ignores reality, forcing American
companies to defend themselves against regulations and rules
that are immaterial to their business model. The rush to
implement ESG policies in housing and insurance will come at a
price, leaving taxpayers and our constituents with fewer
choices and higher costs. Republicans will continue to defend
capitalism, as Democrats continue to push their far-left
ideology on the American people through the regulatory process.
I appreciate you allowing me to waive on to the
subcommittee, and with that, I yield back.
Ms. De La Cruz. The Chair now recognizes the ranking member
of the subcommittee, the gentleman from Missouri, Mr. Cleaver,
for 5 minutes for an opening statement.
HON. EMANUEL CLEAVER, RANKING MEMBER OF THE SUBCOMMITTEE ON
HOUSING AND INSURANCE, A U.S. REPRESENTATIVE FROM MISSOURI
Mr. Cleaver. Thank you, Madam Chairwoman. The title of
today's hearing is, ``How Mandates Like ESG Distort Markets and
Drive Up Costs for Insurance and Housing.'' A mandate, by
definition, is a statute, law, rule, regulation, code, or
ordinance duly adopted by any government authority, and in the
United States, as in most nations, we have different levels of
government and different branches of government and mandates at
each level. No mandate is the same. Mandates of costs have
benefits, which must be debated on their individual merits.
Each of the witnesses with us today, based on what I have seen
in their testimony, has their own mandates to discuss, and I
would hope that this hearing will take on a clear focus by the
end.
Let me just say this. In terms of cost, I am very concerned
about the severe financial and nonfinancial costs for failures
to adequately address environmental, social, and governance
concerns. The best things in life are not always free.
Nature also has a mandate, and we are going to have to deal
with it, whether we want to or not. In recent years, we have
seen frequent and severe natural disasters in the United
States, including hurricanes, wildfires, and floods due to
climate change, and an increase in people living in high-risk
areas, such as coastal areas vulnerable to severe storms and
flooding, has worsened the impact of these events. Low- and
moderate-income and minority households are disproportionately
exposed to risk due in large part to historical discrimination
and underinvestment in infrastructure in their communities.
This has the most material impact on insurance costs.
According to FEMA, roughly two-thirds of communities facing
hazardous risk have not yet adopted hazard-resistant building
codes, which, if adopted in all future construction, would
avoid more than $600 billion in cumulative losses from floods,
and insurance paying out large amounts of money. In addition,
current energy codes extend habitability during these weather-
induced incidents by as much as 120 percent during extreme
cold, and up to 140 percent during extreme heat, while reducing
death by 80 percent, and 30 percent, respectively. Communities
that regularly adopt modern energy codes also save money for
residents and businesses and improve community health and
resilience. Thirteen percent of U.S. households are now
severely energy-burdened and are paying more than 10 percent of
their income on energy.
The crisis of insurance costs is not ESG mandates, but just
the opposite. There are significant costs for failing to
implement ESG mandates that are passed on to others and pushed
off to be paid at another time. ESG mandates will continue to
be irreplaceable in reducing risks that drive costs, and in
improving the resiliency of current and future housing stock
with an eye toward affordability and racial equity.
Democrats are leading the way on this issue that we are
required to address. We went through and approved the
Infrastructure Investment and Jobs Act, as well as the
Inflation Reduction Act, to help industry and local governments
better address the underlying issues. In housing, social
considerations were ignored, and discriminatory zoning known to
increase the cost of housing development and drive both
economic and racial segregation have flourished. Democrats are
leading the way on these solutions as well, through the Housing
Supply and Affordability Act, the Yes In My Backyard Act, my
American Housing and Economic Mobility Act, and several pieces
of legislation put forward by Full Committee Ranking Member
Waters.
The reality is that while reducing barriers is essential to
fixing the supply problem, it will not be enough to address
market failures. Even with commonsense regulatory reforms,
builders cannot deliver low-enough rents without subsidy and
robust government support for housing that must be built with a
long-term aim at being able to withstand the environments in
which they are built. I hope that we can have a good discussion
today rather than denying the importance of ESG mandates, but
to actually discuss how we can best move forward with ESG
concerns in a sensible way.
Madam Chairwoman, I would like very much to ask for a
moment of personal privilege.
Ms. De La Cruz. Without objection, it is so ordered.
Mr. Cleaver. Thank you very kindly. I have been here on
this committee for almost 19 years, and we have had a lot of
people who have been here with us, and those people have made
the committee work, made the committee actually function both
on the Republican and Democratic sides. From time to time, we
have to say goodbye to some of our staff members, and today,
Franklin Thornton is having his last day with the committee. He
has been here for a while.
Many of us will remember that all during the COVID crisis,
he was the first face we saw every morning, for good or bad,
but he was there and gave us great comfort. He made sure that
everyone was connected during a very turbulent time in our
country. So, I just wanted to express, on behalf of all of us,
our appreciation for his work, and it may be of some importance
to his mom and grandmother to know that your offspring has been
very good to us.
[applause]
Mr. Cleaver. Thank you very kindly, Madam Chairwoman.
Ms. De La Cruz. Thank you for your service, Mr. Thornton.
Today, we welcome the testimony of: Mr. Bill Boor, the
president and CEO of Cavco Industries, and the Vice Chairman of
the Manufactured Housing Institute; Ms. Alicia Huey, the
chairman of the National Association of Home Builders, and the
president of AGH Homes, Inc.; Mr. Jerry Theodorou, the director
of finance, insurance, and trade at the R Street Institute; and
Ms. Caroline Nagy, the senior policy counsel for housing,
corporate power, and climate justice at Americans for Financial
Reform.
We thank you for taking the time to be here today. You will
each be recognized for 5 minutes to give an oral presentation
of your testimony. Without objection, each of your written
statements will be made a part of the record.
Mr. Boor, you are now recognized for 5 minutes to give your
oral remarks.
STATEMENT OF BILL BOOR, PRESIDENT & CEO, CAVCO INDUSTRIES, INC.
AND VICE CHAIRMAN, MANUFACTURED HOUSING INSTITUTE, ON BEHALF OF
THE MANUFACTURED HOUSING INSTITUTE
Mr. Boor. Thank you, Madam Chairwoman, Ranking Member
Cleaver, and members of the subcommittee for the opportunity to
testify today. My name, again, is Bill Boor. I am the CEO of
Cavco Industries, the third-largest U.S. producer of factory-
built homes. Last year, we delivered over 19,000 homes to
deserving families. Today, I am testifying on behalf of the
Manufactured Housing Institute, of which I am the Vice Chair.
With regard to ESG, good companies understand that
considering all stakeholders, including the environment, is
good business. The challenge lies in the tradeoffs and the
execution. Narrowly-considered mandates and regulations which
are only focused on one aspect of ESG often result in
unintended consequences. While well-intended, it is undeniable
that a lack of broad perspective in these mandates can get in
the way of companies being able to move the ball forward on
environmental and social improvements, while at the same time
creating jobs, building the economy, and delivering solutions
to problems such as affordable housing.
I want to discuss an example of a well-intended regulatory
mandate that if allowed to proceed as proposed, will directly
hurt those who are on the cusp of affording a home. This is the
energy efficiency standard being imposed by the Department of
Energy, which will drive up costs of manufactured homes without
achieving the DOE's energy objective. The question is not just
one of whether there is a return on the added upfront cost, but
whether the prospective homeowner can even afford the cost at
all. Based on studies of price sensitivity, if the added costs
of the DOE rules are conservatively estimated at $6,000, over
900,000 households will be priced out of homeownership, so the
tradeoffs and consequences are very real.
I want to emphasize that I am proud of the manufactured
housing industry's record. By virtue of our controlled and
efficient processes, we are inherently more environmentally-
friendly than other sources of housing. We have a long history
of consistent and ongoing quality and energy improvements, and
we have a strong and positive working relationship with our
regulator, HUD. This is an industry that agrees with the
objective of continuing to improve energy efficiency, not one
that needs to be dragged into doing the right thing.
As a result of what I view as a legislative misstep, we now
face two regulators with overlapping, but different, mandates.
HUD is expected to provide one set of Federal standards
considering product safety, quality, cost, and the objective of
increasing affordable housing. However, as a result of an
unvetted rider in 2007, the DOE is now separately seeking to
singularly drive energy efficiency with disastrous consequences
for lower-income families. Briefly, the DOE rule holds
manufactured housing to more stringent standards than other
forms of construction. It significantly underestimates the
burden placed on lower-income homebuyers, and it is impractical
given our unique manufacturing and transportation processes.
The DOE's execution of their mandate has many problems, but
fundamentally, the process and what they have been asked to do
is flawed. Fortunately, it could be readily corrected with H.R.
3327, the Manufactured Housing Affordability and Energy
Efficiency Act of 2023. Clarifying HUD as the sole regulator,
and requiring DOE energy mandates to be worked through the
established HUD process, does not stop our path on energy
efficiency. It requires this one objective to be considered
through an already-established holistic process.
Back to the subcommittee's topic, this is a microcosm of
ESG challenges. Well-intended but myopic attempts to regulate
singular topics are bound to mislead if they are not subjected
to a holistic evaluation.
There are many other ESG-related topics I would like to
cover, but I know my time is limited. For example, there is a
role for the Federal Government to eliminate zoning barriers
that prejudicially preclude our homes from needed areas. We are
not looking for advantages, just an even playing field where we
can compete with quality, lower-cost homes.
The central point I would like to make is that providing
affordable homes is an incredibly important social need that
manufactured housing is uniquely positioned to serve. Factory-
built housing is the least-expensive form of unsubsidized
homeownership, and enables us to do good work in responsible
ways. We can dramatically increase affordable housing, while
modeling corporate responsibility, if singularly-focused ESG
regulations are worked through established holistic processes.
Thank you.
[The prepared statement of Mr. Boor can be found on page 36
in the appendix.]
Ms. De La Cruz. Thank you. Ms. Huey, you are now recognized
for 5 minutes to give your oral remarks.
STATEMENT OF ALICIA HUEY, CHAIRMAN, NATIONAL ASSOCIATION OF
HOME BUILDERS (NAHB) AND PRESIDENT, AGH HOMES, INC.
Ms. Huey. Thank you, Madam Chairwoman, Ranking Member
Cleaver, and members of the subcommittee. I am pleased to
appear before you today on behalf of the National Association
of Home Builders (NAHB) to share our views on how burdensome
regulation and mandates promoted by government support for
environmental, social, and corporate governance policies impact
our industry's ability to increase the production of quality,
affordable housing.
My name is Alicia Huey. I am NAHB's 2023 chairman of the
board, and a custom home builder from Birmingham, Alabama.
NAHB's typical member builds 10 or fewer homes per year, and is
a small business, so most of us are not directly impacted by
ESG investing decisions. However, as ESG considerations are
given more credence in various approaches to address climate
change and other social issues, they are becoming increasingly
relied upon to justify regulatory actions. As a result,
government support of ESG policies is more and more likely to
impact housing production and affordability.
As the ESG debate moves forward in this country, NAHB
members are increasingly concerned about the far-reaching
impacts and how we will be challenged to comply. ESG policies
have already caused insurance companies to drop out in some
areas and to raise rates in others. Lenders are being urged to
minimize the risk associated with their portfolios and may
cease lending in certain locations or increase their borrowing
rates. Likewise, small businesses doing business with publicly-
traded companies may be required to provide their ESG risk data
to those larger companies as supply chains continue to stifle
residential construction projects across the nation.
We also worry that ESG disclosure requirements could
further impede or prevent availability of the needed building
supplies. Finally, we are concerned that overreliance on ESG
factors often ignores the central tenants of consumer choice,
market needs, and project feasibility, which are key
considerations for home builders.
Like myself, NAHB members live in the communities in which
they build. We are stewards of the environment, hire local
workers, provide housing at a diversity of price points, run
our businesses in responsible ways, and make positive
contributions to the social and economic fabrics of our towns.
However, government regulations continue to make it more
difficult to provide an affordable housing product to our
customers. Residential construction is one of the most heavily-
regulated industries in the country. To emphasize the impact of
this regulation burden, NAHB recently did a study which shows
that approximately 24 percent of the price of a newly-built
single-family home is due to the broad set of regulatory
burdens imposed by the local, State, and Federal Governments.
On the multifamily side, up to 41 percent of apartment
development costs are due to regulations.
Many actions have been taken over the past few years to
insert ESG considerations into Federal policies and regulations
that add more uncertainty, delays, and costs to the
homebuilding process, and negatively impact housing
affordability. These include: recent legislation that uses the
lure of Federal dollars to pressure State and local governments
to adopt costly and restrictive energy codes; a growing effort
in communities to cite ESG policies to gain support for laws
and ordinances that ban the use of natural gas and propane
within new construction and in existing homes, greatly limiting
consumer choice; a push by the Department of Energy to increase
energy efficiency standards for electrical distribution
transformers during a time when a historic backlog is hampering
development across the country; continuing regulatory
uncertainty surrounding the most recent, ``Waters of the U.S.''
ruling under the Clean Water Act; a recent decision by FEMA in
California to suspend a critically-important floodplain mapping
program that will result in homebuyers needlessly having to
purchase flood insurance; and proposals being considered by
Federal agencies that will have the unintended consequence of
discouraging private sector participation in rental markets.
Finally, I have highlighted already a growing insurance
crisis made worse by perceived risk and pressures to address
ESG. That is making it more difficult for both existing and
potential new homeowners to secure available and affordable
insurance and is impacting development of affordable rental
housing.
Thank you again for this opportunity, and I look forward to
working with all of you.
[The prepared statement of Ms. Huey can be found on page 51
in the appendix.]
Ms. De La Cruz. Thank you. Mr. Theodorou, you are now
recognized for 5 minutes to give your oral remarks.
STATEMENT OF JERRY THEODOROU, DIRECTOR, FINANCE, INSURANCE AND
TRADE, R STREET INSTITUTE
Mr. Theodorou. Vice Chair De La Cruz, Ranking Member
Cleaver, Chairman Davidson, and esteemed members of the
subcommittee, thank you for holding today's hearing and for the
invitation to testify. My name is Jerry Theodorou, and I lead
the R Street Institute's Finance, Insurance and Trade Program.
My focus at R Street is analysis of the property and casualty
insurance industry. My research, publications, public
presentations, and congressional testimony have focused on
drivers of insurer performance and the impact of market and
external factors on insurers, policyholders, and the economy.
Today's hearing is timely because environmental, social,
and governance factors can influence insurers' performance,
and, by extension, the availability and cost of insurance for
consumers and businesses. Government mandates impacting the
insurance industry, including ESG mandates, can distort
insurance markets, leading to less choice and higher costs for
insurance buyers. Examples of the ways that government or
regulatory mandates can distort insurance markets include
monopolies for certain insurance products, and intervention in
how insurers may calculate their rates. For example, workers'
compensation insurance is provided by a State-run monopoly in
four States: Ohio, North Dakota, Washington, and Wyoming. The
absence of private insurers there deprives employers of product
choice in such a noncompetitive market.
In North Carolina, a rate bureau promulgates insurance
rates. The State's rate bureau has been compared to a cartel
because insurance companies set and use the bureau rates,
depriving customers, buyers of insurance, of a choice.
In California, regulatory overreach has disrupted the
insurance market in three ways: by prohibiting insurers from
incorporating reinsurance costs into ratemaking; by prohibiting
insurers from factoring current weather trends into rate
calculations; and by allowing intervenors to challenge rate
change requests with the implementation of the intervener
process intransparent. As a result, many national insurers are
curtailing their California insurance business.
ESG mandates can also impact the availability and cost of
insurance if insurers are barred from insuring certain energy
risks; because power plants cannot operate without insurance,
they will find coverage outside the standard market from
Lloyds, or from the surplus insurance marketplace, where costs
are generally higher.
ESG mandates can also adversely impact the insurance
industry's large investment portfolio. The property and
casualty industry holds $1.2 trillion in bonds. Life insurers
hold an additional $3.4 trillion in bonds. This is nearly 10
percent of the aggregate $51-trillion U.S. bond market.
If ESG mandates compel or prohibit investment in certain
issues, insurers' investment income can be compromised, leading
to higher insurance rates to meet shareholder return
expectations. The core activity of insurers is to allocate
capital to risk. Premiums reflect risk magnitude. Past losses
and claims payments are signals that inform insurers about
risk. If government bodies mandate rating factors that
insurance companies may or may not incorporate into pricing,
rate is decoupled from risk, and the market is disrupted. If
insurers are coerced to price policies without regard for risk
magnitude, they will abandon markets.
If ESG is mandated, with the government replacing the
judgment of the private sector, it will have deleterious
impacts, but if it is private sector-driven, it can be a useful
tool in the toolkit. Mandates impacting insurers' coverage,
price, or investment decisions render insurers less able to
fulfill their three critical roles in the economy: paying for
claims from disasters and other losses, enabling businesses to
take on risks that they would not otherwise take; and buying
municipal, government, and corporate bonds to support our
nation's infrastructure and to satisfy America's need for
capital in corporate America. Because the insurance industry
plays such a vital role in the economy, mandates that may
disrupt the industry deserve serious consideration. Exploration
of the impact of ESG on insurers is, therefore, a timely and
important undertaking.
Thank you for having this hearing, and thank you for
listening to my views. I look forward to your questions.
[The prepared statement of Mr. Theodorou can be found on
page 60 in the appendix.]
Ms. De La Cruz. Thank you. Ms. Nagy, you are now recognized
for 5 minutes to give your oral statement.
STATEMENT OF CAROLINE NAGY, SENIOR POLICY COUNSEL FOR HOUSING,
CORPORATE POWER, AND CLIMATE JUSTICE, AMERICANS FOR FINANCIAL
REFORM (AFR)
Ms. Nagy. Thank you. Vice Chair De La Cruz, Ranking Member
Cleaver, and members of the subcommittee, thank you for the
opportunity to present testimony on behalf of Americans for
Financial Reform. We are a nonprofit, working to lay the
foundation for a strong, stable, and ethical financial system,
one that serves the economy and the nation as a whole.
Our housing and climate change crises are taking a
tremendous toll on everyday working people. Following years of
heavy losses from climate-exacerbated natural disasters,
insurers in States across the country are raising rates and
pulling out of markets altogether. Just this week, Farmers
Insurance announced that it will pull out of Florida. In
Louisiana, 11 insurers have gone bankrupt in the last 2 years,
and 10 have left the State, and this is just the beginning.
This problem will continue to grow worse each year, each
decade, until the climate crisis is mitigated.
This hearing also comes at a time of unprecedented housing
unaffordability and homelessness. In 2021, the number of
tenants with unaffordable rents reached an all-time high, with
49 percent of U.S. renters paying more than a third of their
income on rent. Although homeownership is still a goal for
many, it is increasingly unattainable when high rents hamper
the ability to save for a down payment and home prices continue
their meteoric ascent.
In terms of factors influencing insurance prices, with the
exception of the National Flood Insurance Program (NFIP),
insurance is regulated at the State level, and our States are
home to a broad diversity of political viewpoints. Some, like
California, have adopted more-stringent consumer protections,
such as procedural limits on rate increases, while other
States, like Florida, have passed anti-ESG laws. Yet, insurers
are raising rates and withdrawing coverage in both of these
States, which indicates that ESG is not the main driver of
insurance unaffordability.
What, then, is behind these price increases? First,
obviously, climate change is contributing to increasingly-
frequent and severe natural disasters. This has translated into
massive, often unsustainable losses for insurers. Climate
change is, in effect, upending the risk calculus on which our
insurance system has been based.
Second, reinsurance rates for catastrophic property
coverage have greatly increased in recent years. July
reinsurance renewal costs have increased--that is this July--by
30 percent to 50 percent for some U.S. policies. The
reinsurance market is global and unregulated, meaning that we
have little to no control over their rates or what they do.
Third, unsustainable land use practices. Many States and
localities continue to permit or even encourage new housing
construction in disaster-prone areas. These problems are
obviously very complex, and there is no one simple solution.
This really requires many agencies and levels of government
acting in tandem to truly meet this challenge.
First, we need to support climate financial regulatory
efforts. Financial regulators and institutions must manage and
mitigate climate financial risks. Many lenders and insurers are
contributing to the climate crisis by internalizing short-term
profits through their investments in risky, carbon-intensive
industries, while externalizing the costs onto their consumers,
and ultimately withdrawing when the physical climate risks get
too high.
We must also improve insurance data collection. Right now,
we do not even have access to the data necessary to understand
insurance trends on a national level, which is why we support
the Federal Insurance Office's limited data request for ZIP
Code-level data on homeowners insurance policies, and we urged
the Office to go further in seeking more granular data.
We should consider developing a public reinsurance program
for States. Reinsurance price increases are a major driver of
insurance pricing, and a public reinsurance program could allow
States and communities to opt in, in exchange for agreeing to
consumer protections and limiting or ending development in
hazardous areas.
We must support climate-resilient communities. The
Inflation Reduction Act provided a large amount of Federal
funding to make our homes more energy-efficient and climate-
resilient. FEMA also has hazard mitigation grants and buyout
programs, and these resources are deeply needed, and we will
need more of them just to meet the current demand.
We need to support States in lowering disaster losses by
limiting or ending new development in hazard-prone areas,
investing in climate-resilient infrastructure, and requiring
insurers to provide premium reductions when property owners
undertake home hardening improvements that will improve their
vulnerability.
My testimony has mostly focused on insurance. With regards
to housing, we should require tenant protections on FHFA-
financed properties and crack down on private equity abuses.
Thank you for the opportunity to provide testimony on these
urgent issues. I look forward to answering your questions.
[The prepared statement of Ms. Nagy can be found on page 71
in the appendix.]
Ms. De La Cruz. Thank you. We will now turn to Member
questions, and the Chair now recognizes herself for 5 minutes
of questioning.
My background is in insurance and financial services. I
have been in that industry, or was in that industry for over 20
years, so I find particularly interesting the comments, and
suggestions, and your thoughts as witnesses for this
subcommittee hearing. Coming up to Washington, D.C., as a small
business owner myself, and never having a political position
besides this one, I have found it very disturbing how, when I
sit in these meetings, the answer always seems to be more
government regulation, more government involvement, or rolling
out the government checkbook in order to help people all over
this country, when as a small business owner myself in the
past, I thought the answer was often looking at my own business
and seeing what I could do for efficiency, how I could help my
customers and my consumers.
Ms. Nagy, you mentioned Florida, and I am from Texas, so
Florida and Texas have a unique kinship in how California has
had stricter regulations when it comes to price increases for
insurance versus California and Florida. The first thing that
comes to mind is the company that I worked with--just because
something happens in California and they regulate more, does
not mean that the prices go away or the increases go away.
Instead, that price is actually distributed to all of those
other people to absorb the decisions that States like
California make.
During the time of historic inflation, we just heard how
the president of the National Association of Home Builders said
that nearly a quarter of average sales for new family homes
have been due to some of this increasing regulation, this ESG
policy. In addition, add on to that the historic inflation
under the Biden Administration. Could you please share with me
how we might be able to look at, instead of having more
regulations, ways that we could cut regulations and reduce
costs that would ultimately be handed down to the consumer to
be able to purchase more homes, to get more insurance?
Ms. Nagy. Thank you, Congresswoman De La Cruz. When
thinking about the State-to-State differences, sometimes it is
hard to make comparisons, because Florida has had a lot of
hurricanes in recent years, and Texas and California have not.
I think, though, if I was going to choose where I would rather
be a consumer of insurance, I would pick California. In
California, the insurance premiums are significantly lower; for
a home worth $500,000, an average rate payer in California is
paying $1,822, compared to $4,629.
Ms. De La Cruz. I am going to interrupt you right there.
You are comparing apples and oranges.
Ms. Nagy. Yes.
Ms. De La Cruz. We just talked about how insurance is based
on risk. In the State of Florida, you have hurricanes, just
like South Texas, where I am from. There is also high wind risk
as well that you do not have in California, so it is unfair to
compare the costs because the cost of insurance is based on the
amount of risk. You do not have hurricanes, and you do not have
the same wind elements that you have in South Texas or in
Florida, so we think it is unfair to compare those two when you
are talking about apples and oranges.
In the State of Texas, the National Flood Insurance Program
(NFIP) was just recently here asking for more money because
they are going broke. They took flood insurance away from
insurance companies like my own and made it a government
program, and guess what? We were asked to waive their debt
because they are absorbing--and when I say, ``they,'' I am
talking about the American taxpayer--the cost of these
government subsidies. So, I have real concerns about further
government regulation and the ultimate cost to consumers. With
that, I yield back.
I now recognize the ranking member of the subcommittee, the
gentleman from Missouri, Mr. Cleaver.
Mr. Cleaver. Thank you very much, Madam Chairwoman. I love
my grandmothers, both my maternal and paternal grandmother. I
loved spending the night with my maternal grandmother because I
could make no mistakes. I could do nothing wrong. The only
problem I had is when she wanted me to go to the store, which
is not a bad thing, except that I had to pass by Ms. Nancy's
house. Ms. Nancy had a Rottweiler, and I explained to my
grandmother over and over and over that I was scared of that
Rottweiler, whose name was Satan. She would say, do not worry
about the Rottweiler. Just do not look him in the face. Just
walk by. She did not tell him that because he tried to climb
the fence on me every time, so I learned the lesson that
ignoring something will not make it go away and will not make
it friendlier. If it can get out, it will be Satan on this
whole planet if we continue to ignore climate change.
Ms. Nagy, there is a growing concern about the lack of
capacity in the insurance and reinsurance markets and the
downstream impact it is having on consumers and property
owners, mainly through massive cost spikes, coverage
limitations, and exclusion of risk. Even worse, the problem is
reaching crisis levels and has begun to raise serious alarm
across the entire financial system, with trillions of dollars
in uncovered and uncoverable risk. How do we stabilize the
situation and prevent massive exposure to taxpayers in the wake
of these disasters?
Ms. Nagy. Thank you for that question, Congressman. I live
in upstate New York, and as I testify before you today, my
neighbors in upstate New York and in Vermont are facing the
heartbreaking loss of life, and the devastation of homes,
businesses, and beloved local institutions, all from an
unusually severe rainstorm. I think we can say that this is no
longer an issue that is a hypothetical. It is here right now.
We all saw this very House building shrouded in wildfire smoke
from the devastating Canadian wildfires that burned a greater
area than any previous year on record, even before the wildfire
season had begun, not to mention that we just went through the
hottest June in recorded history.
Financial regulators and institutions must manage and
mitigate climate financial risks, not simply push the costs off
onto consumers. Many lenders and insurers are contributing
significantly to the climate crisis by internalizing short-term
profits through their investments, and financial regulators
really need to monitor these risks and risk management methods
to protect consumers, financial institutions, and the financial
system.
In terms of how we can support localities, the first thing
that we need to do is support hazard mitigation planning
programs and buyouts where they are desired by the property
owners. Land use is a very local issue, and there are rare
times when Federal programs or regimes really impact things at
that level but given the incentives for local governments to
increase property tax revenue, there is always going to be a
need to provide better incentives for States to reduce this
development.
I think also in terms of planning grants, hazard
mitigation, and building stronger building codes, one person's
unnecessary regulation is another person's life saver. I think,
as we all saw with the recent implosion of the Titan
submersible, regulations do have benefits, they do protect
people, and I know I would rather be in a safer, more-resilient
building in the case of any emergency.
Mr. Cleaver. Thank you very much.
Mr. Boor, would it not be better if we were spending a
couple of hours dealing with this problem that is real, rather
than debating whether or not we ought to do anything, and all
of the issues that we do not want to pay any more money, we
have to then write regulations? Would it be better if we spent
the time trying to figure out how we deal with this problem
that is not going to go away?
Mr. Boor. Yes, I absolutely agree. I think the industry's
position is we want to make progress, and we have made good
progress. I will give you a little bit of background, when the
DOE early on in the process of promulgating these rules----
Chairman Davidson. [presiding]. The gentleman's time has
expired. I now recognize the gentleman from Missouri, Mr.
Luetkemeyer, who is also the Chair of our Subcommittee on
National Security.
Mr. Luetkemeyer. Thank you, Mr. Chairman. Mr. Theodorou, I
want to focus for a second on some of the self-inflicted
problems in certain State insurance markets like California,
which you mentioned, that seem to have a regulatory bias
against insurers transferring risk from their balance sheets to
the global reinsurance marketplace. From what I have seen, the
ESG regulatory activism in California might be the worst of
all. Right now, California is the only State in the country
that does not allow insurers' rates to be based on their actual
reinsurance costs, so as reinsurance costs go up, insurers
cannot have their rates reflect those higher costs.
As a result, more reinsurers are starting to treat
wildfires as a primary risk and not a secondary peril. The cost
of reinsurance has shot up while the cost to primary insurance
companies of underwriting wildfire risk has stayed more or less
flat. The net result here is either insurers have to purchase
less reinsurance, or they will pull back from issuing new
homeowners coverage in the State, as three of California's top
insurers have done in this past year. So, Californians get
fewer options and higher prices while the willing risk capacity
of a $630-billion global reinsurance market goes underutilized.
Mr. Theodorou, does it make any sense to you that
California would deliberately discourage the use of reinsurance
at a time when its primary insurers are actively fleeing its
homeowners market? How would the great use of global
reinsurance and risk sharing help to benefit Californian
consumers?
Mr. Theodorou. Thank you, Congressman Luetkemeyer, for that
question. Indeed, in California, where the cost of reinsurance
is not permitted to be included in insurance rate making, you
have a Catch-22. The reinsurance rates are going up because the
risk is going up, and the insurers have their hands tied, and
they cannot get more than a 6.9-percent increase. If it goes
into the intervener process, it may be extended beyond the 60
days, so it is unfortunate that California cannot use
reinsurance to its benefit.
To the question earlier about reinsurance, reinsurance
capacity is there. The citizens in Florida got a billion
dollars of reinsurance from Warren Buffett's Berkshire
Hathaway, and the Texas Windstorm Insurance Association (TWIA)
secured over a billion dollars of reinsurance protection from
the private reinsurance industry, and also from the catastrophe
(CAT) bond industry. So, reinsurers do have the capital, and
they are willing to deploy it if they can make a fair margin.
There are people who are standing on the sidelines, as
Berkshire Hathaway was last year, when they did not participate
in the Citizens Program because the rates were inadequate.
Mr. Luetkemeyer. It would seem to me that if you were
incentivized to use the reinsurance market more, it would
actually drive down your costs. I know when I was chairman of
this subcommittee 6-1-2-years ago, we were working on flood
insurance, and we wanted to use the reinsurance market to help
that situation. If we would have done it in the previous 20
years, we actually would have paid all of our claims, never had
any tax bills go to the taxpayers, and still have had coverage
at a minimum rate increase. So, there is a place for it. What
is the percentage of increase in insurance costs due to ESG
regulations?
Mr. Theodorou, do you know offhand?
Mr. Theodorou. I do not have a number for it. The main ESG,
not litigation, legislation is directed at State public pension
funds.
Mr. Luetkemeyer. Okay. Ms. Huey, one of the questions that
I have is with regards to the increasing cost of financing
homes, and how many people are unable to finance a home as
costs go up due to rules and regulations. Can you give me an
idea of what the cost of rules and regulations are from the
standpoint of your average cost of a home? What would be the
average cost of rules and regulations to the taxpayer or to the
homeowner?
Ms. Huey. Yes, sir. Thank you very much for that question.
The latest study that NAHB has conducted, that was published in
May of 2021, showed that regulations imposed by all levels of
government accounted for $93,870 of the average price of a new,
single-family home, and that average price was around $397,000,
so that is about almost 24 percent of the price of a new home.
Our studies also showed that for every $1,000 increase, 149,000
people are priced out of the market.
Mr. Luetkemeyer. Okay. For every $1,000 increase in the
cost of financing a home, 149,000 people are unable to get
themselves into a home. Is that what you just said?
Ms. Huey. Yes, sir.
Mr. Luetkemeyer. Thank you very much.
Chairman Davidson. The gentleman's time has expired. The
gentlewoman from New York, Ms. Velazquez, is now recognized for
5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman. Ms. Nagy, worsening
climate-driven natural disasters all over this country, not
just along the coasts, are impacting the affordability and
availability of property insurance that helps mitigate risk. A
recent report by the National Multifamily Housing Council
indicated that the average increase nationwide for property
insurance coverage at apartment communities was a staggering 26
percent through early 2023. In some markets or at some
properties, like many affordable housing communities, we have
seen triple-digit increases. Soaring operational costs like
this are straining property operations and adding to the cost
of housing. How can this committee work towards providing some
relief and drive greater capacity in the insurance and
reinsurance markets to help address the soaring costs faced
across the country?
Ms. Nagy. Yes. The issue of insurance for multifamily
housing, and particularly for new, affordable multifamily
housing development, is a major issue, and this is another area
where I think consumer protections do have a role to play. In
New York City, we are seeing insurers ask questions about how
many folks living in this apartment are going to be receiving
Section 8 benefits and in any other area of New York housing
law, that would be a source of income discrimination.
Ms. Velazquez. Right.
Ms. Nagy. With the insurers, we do not know what formulas
they are using. They really treat their rate setting as a
proprietary black box, and as a result, we have seen a lot of
discrimination in how prices are set using algorithmic models
to model things like crime rates. So, this is obviously an
issue that is very concerning.
State regulators really have a role to play there, but so
does the Federal Government, and that is why the Federal
Insurance Office's data request is so important. That is why we
support it, because we really cannot even know what the problem
is until we get a sense of what is happening at the different
State levels so we can better come here, as the Vice Chair
said----
Ms. Velazquez. So, there is a role for the Federal
Government?
Ms. Nagy. Absolutely, yes.
Ms. Velazquez. Okay. Thank you.
Ms. Huey, is there anything you would like to add?
Ms. Huey. No, ma'am. Thank you.
Ms. Velazquez. Okay. Mr. Huey, it is no secret that low-
and moderate-income (LMI) communities and communities of color
are often the most impacted by devastating flooding and other
climate-related events. Within these communities, affordable
housing or smaller rental properties can be disproportionately
impacted as the current structure of Federal flood resiliency
and disaster mitigation efforts is directed elsewhere. How can
we leverage Federal resources and tools to drive better
disaster protection and mitigation efforts toward the most-
vulnerable communities?
Ms. Huey. I'm sorry, could you repeat the question?
Ms. Velazquez. How can the Federal Government redirect
resources to mitigate the impact of climate change in LMI
communities and communities of color? How can we leverage
further resources and tools to drive better disaster
protection?
Ms. Huey. Yes, ma'am. Thank you for that question. I
believe that with all housing, and certainly government
assistance programs and things like that, if we look at the
existing housing stock that we have, new construction is
already so energy-efficient, and we build such a tight house in
new construction because of the regulations that we have now,
and we are happy to do that, but if we look at the existing
housing stock, and I cannot remember the exact number of
housing that there is, that is where we can address a lot of
climate change, I believe. Homes and projects that were built
in the 1970s to give them incentives for better insulation,
higher Seasonal Energy Efficiency Ratio (SEER) units and HVAC
units, caulking around the windows, and things like that would
go a long way in helping climate change.
Ms. Velazquez. My time is up. Thank you, Mr. Chairman.
Chairman Davidson. I thank the gentlewoman. The gentleman
from South Carolina, Mr. Norman, is now recognized for 5
minutes.
Mr. Norman. Thank you, Mr. Chairman. Ms. Nagy, let me ask
you a question I asked some environmental activists who came by
my office: Do trees have lives? Do trees have lives like
people? Do they grow, and then there is a point that they die?
I asked the activists the same question, and they said, what
are you getting at? I said, it is a very simple question, do
trees have lives, and they actually said, no, it is left
untouched. In California, if you ask any forester the reason
why you have forest fires, it's because you have these
regulations that are letting thatch build up 2 and 3 feet. That
does not make sense, and then for the commissioner in
California to let government bureaucrats dictate rates that
private insurers can charge is ludicrous.
In your role, you have a great example to actually go talk
to a forester, and it can be maintained. If you are never going
to cut a tree, if a tree lives forever, if you are never going
to cut them and log them at a proper time to allow nature to
take place, to allow the forest to breathe, if you are never
going to take thatch away, that is kind of a tinderbox. Then,
you have a problem, and that is a lot of the reason that
California is having the problems that they are having.
Mr. Boor, in your industry, you serve over 22 million
Americans who buy manufactured housing. You and I were talking
the other day--and I appreciate you coming by--about some of
the issues you are facing with this rule in the most-affordable
housing market that there is. If you go into a manufactured
housing plant, they are doing an amazing job that site builders
cannot do. It is controlled by a building such that rain and
weather does not affect it. Tell me some of the things you were
telling me about these regulations that are going to ruin the
most-affordable housing and the most-promising housing in the
country. Go over a few things.
Mr. Boor. Yes, I appreciate the opportunity. I think, to
your point, manufactured housing really is serving the lower
price point. When we talk about affordability, people tend to
talk about it at the median, and I think we are at the place
where the rubber meets the road of whether or not people can
buy a house. Yes, to give you some specific examples about the
changes that would be required by these regulations, we would
have to build thicker walls. You go from 2-by-4----
Mr. Norman. Give me an example, from 2-by-4 to what?
Mr. Boor. 2-by-4 to 2-by-6.
Mr. Norman. 2-by-6.
Mr. Boor. We would have to dramatically increase the
insulation. That would cause us to increase eave heights. By
doing that, we have to get higher-pitched roofs that, frankly,
would not work for the transportation of many of our homes to
sites. It would require heating and cooling equipment that,
frankly, is not available to our industry right now in the
sizes that would require and there are a lot of aspects like
that on windows that would require argon gas, for which our
industry currently does not have a supply. So, we would be
redesigning hundreds of thousands of floor plans and trying to
get those approved through the Design Approval Primary
Inspection Agency (DAPIA) process and the HUD certification. It
would be a very difficult transition for sure, but it would
dramatically change the design and increase the cost for
prospective homebuyers.
Mr. Norman. Would not it be behoove someone who has been
putting regulations on you--it does not matter what agency--to
come to your plant? When I have a problem, I go to carpenters.
I do not go to bureaucrats who would not know a nail from a
toilet. So, would it not behoove those making regulations to
come by your plant or come by a plant and look at it?
Mr. Boor. Yes, and we have another process under HUD where
if you have worked through the HUD process, we have a consensus
committee there that is made up of consumer advocates, people
from the industry, who can help to understand how to come up
with regulations that actually work for our industry, and that
is what we encourage at the front end of DOE's process. I
started to speak earlier about how at the front end, myself and
other CEOs in the industry met with White House staff, and our
message was, hey, we are on board, let's go raise the standards
for energy efficiency, but let us be part of that so that we
can make sure the mandates and rules that are put forth
actually work for our industry.
Mr. Norman. Agencies work for us. We do not work for
agencies. We pay their salary. A lot of times, that is
forgotten in the real world of America and the real world of
business. I would just urge you to keep at it, and invite every
one of the panelists to a plant, and let them take a look at
it. Thank you so much.
Mr. Boor. Sounds good. Thank you.
Chairman Davidson. The gentlewoman from Michigan, Ms.
Tlaib, is now recognized for 5 minutes.
Ms. Tlaib. Thank you so much, Mr. Chairman. This is, I
think, our third hearing on this. It is bizarre to me, because
one of the things that I have been really appreciative of in
previous Administrations, and others have been talking about,
is movement around weatherization and even manufactured homes,
doing the kind of upfront, and it does cost money upfront, but
it leads to reducing reliance--energy efficiency actually leads
to lower bills for many of the families, and they cannot afford
it, so it is not all going right out the window. We do not have
some of those investments at the front end.
So it is really bizarre for me, and we continue to hear
this as, oh, the whole housing crisis is because of this. I am
taken aback, because we all know it existed before ESG even was
invented or created. I know in my district, for instance, the
tax foreclosure crisis was just unbelievable. We had one of the
worst tax foreclosure crises in the country. These are families
who actually own their homes, but they could not pay their
property taxes. ESG had nothing to do with it. Nothing.
Actually, probably if it did, maybe there would have been some
sort of best practices or policies implemented, but they are
also acting like ESG is binding. Is ESG binding, Ms. Nagy?
Ms. Nagy. It really depends on whether, by law, it is the
standard.
Ms. Tlaib. Yes, they decide. Is it binding?
Mr. Theodorou. It depends on the legislation and possible
litigation.
Ms. Tlaib. I know, but right now, are ESG policies binding?
Mr. Theodorou. They are not.
Ms. Tlaib. It is advisory, right? It is like, you should
look into this.
Mr. Theodorou. It is a factor that can be looked at because
it may have correlation with risk magnitude, and it is
consistent with fiduciary duty in the investment community.
Ms. Tlaib. Sure. How about you, ma'am?
Ms. Huey. Code requirements are binding. Yes, ma'am.
Ms. Tlaib. They are binding. They are requiring them to
look at these things because what, because it is actually
increasing their mortgage payments? Is it increasing the cost
of homes? I do not understand.
Ms. Huey. The 2021 energy code would increase the cost of a
home--I think some of our members say about $31,000 in their
area.
Ms. Tlaib. One of the things that my colleagues talk about
is manufactured homes, and it is about 11 percent, I think. Is
it 11 percent, Mr. Boor, of single-family homes are
manufactured housing? Is that correct?
Mr. Boor. Yes, from that to the mid-teens.
Ms. Tlaib. Yes. One of the things that they were trying to
advance is energy-efficient standards for manufactured homes,
which many have claimed have made them unaffordable. The data
shows that the cost to comply with energy standards, actually
those improvements reduce maintenance and utility costs for
manufacturing and housing residents in the long term. Is that
correct?
Mr. Boor. That is not correct.
Ms. Tlaib. Really? Why is that?
Mr. Boor. There are----
Ms. Tlaib. Tell me, because you are all acting like this
environmental, the whole little policies around looking at the
fact that we have a climate crisis, is increasing the cost of
manufactured homes, which we all know is because of private
equity firms, because of investors. Ms. Nagy, you know I am
right. All of this existed before that, and now that we are
telling them, hey, you have to be more responsible, then all of
a sudden, we are saying, no, no, no, no, no. You know that you
are the reason we have to increase costs on these folks.
Mr. Boor. Private equity firms are not generally involved
in the manufacture----
Ms. Tlaib. I am just telling you, this is over-generalized
because it is only 11 percent of your business.
Mr. Boor. If you allow me----
Ms. Tlaib. You are saying right now that is not the reason
that manufactured homes are rising in cost. You are saying it's
ESG.
Mr. Boor. I am saying it is a contributor and it is
binding.
Ms. Tlaib. It is a contributor?
Mr. Boor. It is a contributor.
Ms. Tlaib. When did ESG come up in the manufactured homes
industry?
Mr. Boor. ESG is a framework.
Ms. Tlaib. When?
Mr. Boor. It is the mandates----
Ms. Tlaib. When? When did it come about? When did they
start talking about it? 2019? 2018?
Mr. Boor. We are facing these DOE requirements----
Ms. Tlaib. When did they start talking about ESG in your
industry? No, I really mean it, because this is the bizarre
thing; I never even heard of ESG until now. I am really
curious, because to me and my families have seen the rising
cost of housing, but not because of ESG. It is because of all
of the other issues I wish we would be more targeted around
talking about, because a majority of the homes in my district
are less than $100,000, but we cannot get some of these banks
to actually loan to them because it is not profitable.
So, somebody who wants to buy a $60,000 or $70,000 home in
Wayne County, Michigan, cannot find somebody to lend to them
because it is not profitable. Literally, everybody else is
swallowing up these homes, because 60 or 70 investor firms come
together, buy a bunch of them, and turn them into rental
properties. We literally have a block where two people own
their homes. The rest of them are renters, and they are paying
way more than what they would have paid if they had gotten a
mortgage from some sort of banking industry.
I am not disrespecting you all, but please do not make this
about ESG. You are actually failing your members, and your
industry, and literally your sector by focusing on ESG and not
the root causes of why the cost of housing is going up in our
country.
Chairman Davidson. The gentlewoman's time has expired. I
will note that votes have been called. There are 12 minutes
remaining, and about 412 people who have not voted yet, so
given the number of people who are here, my plan is to come
back. If you would like to ask questions, we will continue the
hearing immediately following votes. I would ask Members to get
your final vote in early so we can come back and get some
semblance of a quorum here and move forward with questions.
Before we adjourn, I think we have time for at least one
more, so I will now recognize the gentleman from Wisconsin, Mr.
Fitzgerald, for 5 minutes.
Mr. Fitzgerald. Thank you, Mr. Chairman. For about 150
years, State insurance regulators and laws have regulated
insurance companies. The Federal Insurance Office (FIO) has
grown increasingly aggressive in collecting data from insurance
companies, most recently issuing proposed data collection to
assess climate-related financial risk. The FIO intentionally
chose to not collaborate with State regulators on this climate
data call. Treasury's own proposal concedes it could take 350
hours for the industry to produce the data. That is why I plan,
and I think some other members of the committee will be part of
this, to repeal the FIO's subpoena power in the coming weeks.
Mr. Theodorou, can you just quickly discuss the Federal
Insurance Office and their accumulation of power in recent
years?
Mr. Theodorou. Thank you, Congressman Fitzgerald, for the
question. Indeed, the Federal Insurance Office was created as
part of the Dodd-Frank Act because it was thought that
insurance companies were, in part, responsible for the global
financial crisis, which was not the case. It was banking and
some nonbank lending institutions, and the role in statute of
the FIO is to monitor the insurance industry. There are no
regulatory powers there.
As you have suggested there, Congressman, there has been
more intrusion and requests, data calls, and I think
duplicative data calls because most of the large insurers,
especially the publicly-traded ones, already make detailed
granular climate disclosures, either in their 10-K or in other
publications or disclosures. So to me, it is disturbing that it
is like the nose of the camel is in the tent, and then the rest
of the body is going to follow. It strikes me as an agency that
is looking for a purpose because monitoring and writing reports
has not helped the industry, that I have seen, in a material
way.
Mr. Fitzgerald. Yes. Ms. Huey, can you talk about the
importance of giving communities the flexibility of more self-
sufficiency in their ability to protect themselves in the face
of things like floods and wildfires and tornadoes? This is what
the industry is looking at is, what are the risks associated
with what we have seen, not necessarily in climate change, but
just some of the extreme weather that we have seen.
Ms. Huey. Yes, sir. Thank you very much for the question.
Local decision-making is critical as local experts are more in
tune to the local conditions and the needs of those communities
and municipalities, but with that authority must come the
flexibility to do what makes sense for the community. For
example, in the codes arena, local governments must retain the
ability to amend model codes to accommodate local conditions
and cost-effectiveness concerns, which include consideration of
risk and reasonable steps that can be taken to reduce those
risks. Communities must also be open to reconsidering local
zoning and helping developers overcome NIMBY (Not In My
Backyard) and other challenges so that development can occur in
places that are best suited for community growth and where much
of the market needs it to be.
Mr. Fitzgerald. Very good. Thank you. Mr. Chairman, I will
just ask unanimous consent to enter a Department of Energy
press release into the record. I think the featured press
release from DOE is very telling.
Chairman Davidson. Without objection, it is so ordered.
Mr. Fitzgerald. Mr. Boor, does the rule from DOE that we
were talking about earlier in any way affect mobile homes? Will
this help anyone currently residing in a mobile home? I cannot
see where this would help them.
Mr. Boor. No, the rules would affect new homes, so no one
currently in a home would be helped.
Mr. Fitzgerald. Will this help anyone currently residing in
a manufactured home?
Mr. Boor. No.
Mr. Fitzgerald. No.
Mr. Boor. Only new homes will be subject to it.
Mr. Fitzgerald. Yes. So, what you are telling me is that
DOE probably does not even understand or fully understand the
rule that they have actually issued?
Mr. Boor. Yes, I think their assumptions about the benefits
are dramatically overstated.
Mr. Fitzgerald. There is probably an underlying
misunderstanding about your industry, right? Can you just talk
about this?
Mr. Boor. The rules are based on site-built standards, and
our processes just do not work that way. We can get a lot of
the benefits. We have done a separate study through the HUD
committee, and we can get a lot of the way to where they are
trying to get from energy efficiency, but with process-
appropriate approaches.
Mr. Fitzgerald. Yes. This is real-world, tangible stuff,
whether it is 11 percent, like my colleague just referred to,
or some other percentage of Americans who are living in
manufactured homes. This is real to them. There is real cost
associated with it.
Mr. Boor. Yes.
Mr. Fitzgerald. There are departments like DOE that, quite
honestly, are out of touch with what is going on in the
streets, and that is really what this committee should be
about. So thank you, and I yield back.
Chairman Davidson. I thank the gentleman. I now recognize
the ranking member of the full Financial Services Committee,
the gentlewoman from California, Ms. Waters, for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman, for this
important hearing that you are holding on housing, and
particularly, as I understand it, as it relates to ESG.
I would like to bring to your attention a particular issue
that I think so many Americans are facing right now. For Ms.
Nagy, the number of people paying unaffordable rents recently
reached an all-time high, with the average U.S. renter now
paying 30 percent or more of their income on rent. Monthly
mortgage payments have also reached all-time highs, surpassing
$2,900 per month. In fact, in my State of California, someone
making the minimum wage would need to work nearly 3 full-time
jobs to afford a 2-bedroom rental home.
California is not alone. There is currently not a single
State or county in the United States where a minimum-wage
worker can afford fair market rents. Meanwhile, corporate
landlords, who continue to grow their market share of housing,
have used inflation as an excuse to hike rents and accumulate
excessive profits on the backs of tenants. This is why last
month, I introduced the Housing Crisis Response Act of 2023,
which would make historic investments to increase our nation's
affordable housing supply, reduce rents, and help end
homelessness. Do you believe Federal investments are needed to
fully address the nation's worsening housing and homelessness
crisis?
Ms. Nagy. Yes, absolutely, Congresswoman. We have a severe
national shortage of homes that people with the lowest incomes
can afford. Nationally, we need 7 million homes that are
affordable to Americans who live below the poverty line or who
earn below 30 percent of the area median income. Unfortunately,
because of actors like Blackstone, we are losing what remains
of our affordable housing stock at a rate faster than we can
replace it due to rising rents and stagnant incomes. Many homes
that were once affordable to lower-income people have seen
their rental or purchase prices increase; in just 3 years, 36
States lost more than 10 percent of their lower-rent units, and
14 States lost 15 percent. So, we do need to build a lot more
affordable housing, and we need zoning reform to do it because
in much of the country, only single-family zoning is allowed.
We also need to look at the Federal Government's role here.
The FHFA spends billions of dollars purchasing and guaranteeing
multifamily properties. As we have seen, this has really
resulted in very poor conditions for some tenants, because
there are some deals that only pencil out if you evict the
lower-paying tenants or if you skimp on maintenance and
repairs. The FHFA has a number of requirements for receiving
it, some loan guarantees, and I think it is past time to
consider the well-being of the folks who live in these
buildings, because while housing is regulated at the local
level, this is a national problem, and the Federal Government
does have a role to play here.
Ms. Waters. Thank you so much. Given all of this
information, all of this knowledge, and the crisis that we have
in this country, do you support the Federal investments for
affordable housing in my bill, the Housing Crisis Response Act,
including specific investment for green and resilient housing?
Ms. Nagy. Yes, absolutely. The resources in that bill
really should have been passed earlier, because we have a huge
need in deferred maintenance and public housing.
Ms. Waters. I want to ask Ms. Huey the same question. Do
you support the Federal investments for affordable housing in
my bill, the Housing Crisis Response Act?
Ms. Huey. Ma'am, I know that we have supported your
legislation in the past, and I believe that our association is
looking at that legislation. So, we are looking into it, yes,
ma'am.
Ms. Waters. Thank you. Keep looking. I yield back the
balance of my time.
Chairman Davidson. I thank the gentlelady. Recognizing that
we have 2 full minutes remaining for votes, we will adjourn. It
should be roughly 11:00 when we come back. I would estimate it
might take until 11:10 or so if we wrap up there. So, I guess,
be prepared in that time range. I correct that. We will not
adjourn. We will recess. We will adjourn at the end of the
hearing.
The subcommittee stands in recess.
[recess]
Chairman Davidson. The committee will come to order.
The gentleman from Nebraska, Mr. Flood, is now recognized
for 5 minutes.
Mr. Flood. Thank you, Mr. Chairman. Mr. Boor, one of the
most detrimental regulations impacting the manufactured housing
industry has been the Department of Energy's proposed energy
conservation standards for manufactured homes. This regulation
would impose stringent new requirements on the construction of
manufactured homes, raising costs on one of the few affordable
options for consumers, especially in rural areas like Nebraska,
in my district. Fortunately, the DOE has decided to delay the
compliance date for this rule after significant stakeholder
feedback. Can you speak to the impact this proposed rule would
have on the production of manufactured homes?
Mr. Boor. Yes, thank you for the opportunity. We have
processes under the HUD code where every plan for a house is
engineered and approved. The rules would cause us to basically
have to redesign every floor plan because of costs that are
added in the weight of the house, the thickness of walls, the
elevation of the roofs, and the number of windows that could be
included. So, it is really a complete redesign of all of our
designs that would then have to go through a recertification
process. A lot of the costs involved are the actual changes to
the design once you get through that process.
The other thing that is still undetermined is how the DOE
rules would actually be tested, how the compliance process
would go. We estimate that could cost another $1,500. What I
would like to point out is that it is hard to give you one
number as far as the total cost because we have different house
designs, and each one is going to be a little bit unique, but I
think a rough number for the actual changes to the design might
be in the range of $6,000. There is a big range around that.
Add another $1,500 potentially for the cost of compliance,
which has not really been defined by DOE at this point, so
let's just say, $7,000 to $7,500.
That may not sound like a lot, but I will make two points.
One is the typical cost-benefit analysis looks at, will that
money get paid back for the homebuyer over 10 years? Using
DOE's analysis, which we do think is somewhat flawed, but we
did not change it, we just updated for current costs, for the
vast majority of our homes, that would not get paid back, and
the bigger point is that $7,000 for a customer might be
$50,000.
Mr. Flood. I appreciate your answer. I am going to reclaim
my time. You and I are on the same page.
Mr. Boor. Okay. Thank you.
Mr. Flood. People need to understand that. I want to just
switch gears here and go to the auto insurance market. The
average California annual rate for auto insurance in 2023 was
$2,462, and meanwhile, the average rate in my home State of
Nebraska is $1,538. That is a striking difference of almost
$1,000 annually. California fashions itself as the home of
innovation, but its broken insurance and regulatory framework
does not even allow drivers to voluntarily share telematics
data with their insurers in exchange for lower rates to reward
good driving. For those who may not be familiar with the term,
telematics can be installed in a car to track speed, harsh
braking, or other indicators that may affect an insurance rate.
Basically, by allowing drivers to opt into this, you are giving
them an opportunity to lower their rates by demonstrating that
they are a good, safe driver.
Mr. Theodorou, can you discuss how the use of innovative
technology like telematics in auto insurance could lower rates,
something Californians miss out on, and of which Nebraskans
have taken advantage?
Mr. Theodorou. Thank you, Congressman, for the question.
Indeed, telematics can lower costs. If we look at the history
of automobile insurance ratings, we start with bureau rating
where the rates were set; then segmentation, looking at city
drivers versus farmers, for example, looking at risk factors;
then more granular segmentation; and then the development of
Big Data, so pulling in different data elements because
insurance companies are, by and large, in the data management
business. They look at the data.
Telematics data makes it even more specific by looking at
things like hard braking or turns that are very abrupt, and it
feeds this information back to the driver and to the insurance
company so that the risk, based on the quality of the driving,
helps to determine the price. The capital is allocated
according to the level of the risk, so it is sort of
counterproductive to ignore this kind of data. It is being used
in the trucking industry; commercial auto insurance is
benefiting from trucks that have front-facing cameras that look
at driver behavior, are they falling asleep, for example, and
feed this data back, and this lowers costs.
Mr. Floor. Thank you, Mr. Theodorou. I must yield back.
Chairman Davidson. The gentleman's time has expired. The
gentlewoman from Texas, Ms. Garcia, is now recognized for 5
minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you to all
of the witnesses today. I just want to be mindful of the topic
of today, ``How Mandates Like ESG Distort Markets and Drive Up
Costs for Insurance and Housing.'' Mr. Chairman, I have to
admit, I have sat and listened to all of the opening
statements, and I am not sure that any one of our witnesses
really gave us any example or any real data in connection
between the disclosure requirements, which is simply about data
and being transparent to disclose what you are doing, to how it
actually distorts markets and drives insurance costs. I have
been listening but, again, it is just a reminder to the people
back home that, again, this is just about transparency. It is
about making sure we have the data to make the right decisions
in terms of investors and consumers.
So instead of addressing real problems that my district
faces, like high housing and insurance costs and accessibility,
we are here today because Republicans are trying to forbid
simple, commonsense data from being available to the public.
For some reason, they have gotten this anti-ESG and anti-woke
crusade, whatever that means. It is really perplexing because,
again, in my district, we are worried about natural disasters,
we are worried about the next hurricane season, we are worried
about flooding, because in Houston, and in Texas, generally,
that has happened more often than we can talk about.
Ms. Nagy, I think you said California and Florida have a
lot of floods, and Texas does, too, in Houston, and our region
is very flood-prone. For us, it is not about if we will have a
disaster; it is about when it will come, so that is why
insurance and housing costs are of utmost importance to me and
my constituents, and it is very, very relevant right now,
especially as we are facing hurricane season.
I know that my home State has already tried to dabble in
this issue. They passed a bill, SB 833, that bans ESG risk
analysis in the insurance sector, and, surprise, surprise, it
drew a lot of opposition from a host of insurance trade groups.
Again, ESG is data and disclosure. I think all our witnesses
here, frankly, have failed to connect the dots as to how that
affects the markets, increases the insurance rates, and impacts
housing. Any Republican-led constraints on risk analysis or
limitation on data should be seen as antithetical to the entire
business model of the insurance industry.
There is now widespread concern that Texas bill will deter
more insurance companies from entering Texas markets at a
moment when growing flood risk has already made the Texas
insurance market highly vulnerable. I have already heard about
insurance companies leaving other high-growth States like
California and Florida, as was mentioned earlier, denying
consumers choices and coverage they desperately need and
deserve. This is what it is all about, being able to give the
consumer and the investor the choices to make the right
decisions based on the data that is disclosed.
So, Ms. Nagy, I have a question for you. Given that
insurance is a major channel through which climate risk is
transmitted to the financial system, can you speak to the
dangers of restricting insurance companies from using data and
risk analysis in doing their business?
Ms. Nagy. Yes. I think I understand. Are you referring to
the Texas anti-ESG law that prohibits insurers----
Ms. Garcia. Right, but we do not have to speak specifically
about the Texas law. I think this is what some of my colleagues
would like to do nationally, but can you speak to the dangers
of restricting insurance companies because, again, I think, was
it you who mentioned that we really have no role in this other
than the national flood insurance? All insurance goes through
their State systems for doing business, so I am really not even
sure why we are having this hearing. We should be focused on
extending the National Flood Insurance Program, and improving
it, and making it affordable, and making it accessible,
especially to flood-prone areas like mine. Apparently, we are
dealing with it, so could you tell me what the dangers are?
Ms. Nagy. Absolutely. Climate change is real, and insurers
need to be able to take that into account when setting rates.
The public, too, deserves transparency in terms of how our rate
is being set and where are folks having higher or lower rates.
I think, both cases--sorry.
Ms. Garcia. Mr. Chairman, I did have a couple of other
questions. I will submit them to you for the record to get the
responses in writing.
Chairman Davidson. I appreciate the gentlewoman.
Chairman Davidson. The gentleman from New York, Mr. Lawler,
is now recognized for 5 minutes.
Mr. Lawler. Thank you, Mr. Chairman. It is amusing to
listen to some of my colleagues feign ignorance about ESG and
the impact it has on the market. They know exactly what impact
it has on the market because they have been advocating for
government intervention in our market economy for years. If you
look in my State of New York, as I mentioned in yesterday's
hearing, with the New York State pension fund and the New York
City pension funds, and what they do to try and dictate to
companies and shareholders, it is remarkable. You look at our
housing market and you see what New York is doing just this
year: banning gas stoves, banning natural gas hookups. This is
a State, and California being another one, where they are
absolutely seeking to use their influence to upend the
marketplace. They do not believe in free markets. They do not
believe in consumer choice. In fact, they are trying to limit
consumer choice, and what it does is it drives up the cost of
housing.
So at the very time they talk about the need for affordable
housing, when you limit choice within energy, you drive up the
cost. The average homeowner would have to pay about $30,000 to
$35,000 to convert their home from gas to electric. That causes
a more difficult challenge for someone to purchase a home. So
if we want to actually address the challenge of affordability,
if we want to reduce costs, then we need to actually allow the
marketplace to work.
In New York, 60 percent of New Yorkers rely on natural gas,
and 70 percent of electricity is generated by natural gas. So
if we are going to increase the need for electricity by
converting everyone from gas to electric, how are we actually
going to create that needed electricity? There are a lot of
policies that get enacted precisely because of ESG that are
having a profound negative impact on the marketplace and on the
economy.
As I mentioned in yesterday's hearing, New York State's
pension fund just returned a negative 4-percent return on
investment, and what does that do? That hurts the taxpayers,
because the pension fund has a guaranteed 7-percent return, so
who picks up the tab? The taxpayers, at the same time New York
is facing a $13-billion budget deficit and California is
looking at a $35 billion dollar budget deficit. Great policies.
Really working out well.
It is a disaster, because we want to say this is what
should be instead of letting people choose what they would
like. Most Americans would like companies and corporations to
focus on their product. You build homes, so build homes. Why
are you getting involved in politics? You sell goods, so sell
goods. Stop getting involved in politics. People are tired of
it, and shareholders certainly want to know that there is a
return on their investment. Otherwise, why invest in the
company if you are going to have a loss? What is the point?
Where do you get the capital from if that happens? We are
making really bad policy decisions in the name of politics, and
it is creating havoc all over the place, because politics now
consumes everything. Leave the politics for the committee
rooms, for the chamber, and let businesses do what they are set
up and intended to do. We see every day the impact of this.
So yes, ESG does have a profound impact on our economy,
yes, it does have a profound impact on our housing and
insurance markets. Yes, we should be environmentally-conscious,
and, yes, we should be making decisions to reduce carbon
emissions, but we also need to make decisions that allow for
the economy to grow and that create a situation where we have
clean, cheap, reliable energy policies that positively impact
the marketplace. With that, I yield back.
Chairman Davidson. The gentleman's time has expired. The
gentlewoman from Georgia, Ms. Williams, is now recognized for 5
minutes.
Ms. Williams of Georgia. Thank you, Mr. Chairman, and thank
you to all of our witnesses for joining us today. Mr. Chairman,
I would like to ask for unanimous consent to enter this picture
into the record.
Chairman Davidson. Without objection, it is so ordered.
Ms. Williams of Georgia. Thank you. I appreciate the
opportunity to speak on this topic, because I am living through
my own experience directly related to the impact of climate
change on housing and insurance, so I bring my full lived
experience to this hearing today. If you look at the image
behind me, this is my 7-year-old son, my Carter Cakes, holding
a golf ball-sized piece of hail from a hailstorm that was in my
neighborhood on March 26th of this year. I live in Atlanta,
Georgia.
Now, you all might be wondering, what is so extraordinary
about a picture of hail? It was quite exciting for Carter, but
that Sunday evening, my entire neighborhood experienced a
catastrophic hailstorm which dropped these golf ball-sized
hailstones on our homes, causing so much damage to our roof
that we had to file an insurance claim. I would like to say
that the story ends there, but sadly, it does not. Because of
this extreme weather event, which was out of my control and
happening more and more frequently, especially in the warm
State of Georgia, I was notified that my insurance agency,
State Farm, decided not to renew my homeowners insurance. So as
of July 29th, I have no idea what I am going to do. My
husband--who is with me here today--and I do not know what we
are going to do for homeowners insurance, because State Farm
will not renew our policy because we filed a claim. I was
devastated, because this is a necessity for homeowners, and it
is a requirement for most mortgages, including mine.
As insurance companies increase premiums and refuse to
renew policies due to increasingly-common extreme weather,
first-time homebuyers from marginalized communities will be the
most impacted. This can ultimately stall any progress that has
been made in closing the racial wealth gap through
homeownership, one of the primary drivers of wealth generation
for Black and Brown communities. This means that in places like
Atlanta, my home, and, unfortunately, the national leader in
the racial wealth gap, my constituents' hard-earned equity is
being destroyed by climate change because it is real.
Unfortunately, I am not the only American who has been or will
be dropped by their insurance agency due to extreme weather
events beyond our control. Just look at the insurance companies
pulling out of States like California due to wildfires or
Louisiana due to floods.
Insurance companies are actively evaluating the risk of
insuring homes in the areas most impacted by extreme weather
and realizing how detrimental climate change is for their
business. Because climate change is real, and it does have an
economic impact on the long-term profitability of companies,
clearly, climate change needs to be considered in the decisions
of insurance companies. We also need to make sure that our
most-marginalized communities who are most impacted by climate
change are not prevented from building wealth through
homeownership.
Ms. Nagy, am I getting your name right?
Ms. Nagy. ``Nagy.''
Ms. Williams of Georgia. ``Nagy.'' What actions can the
Federal Government take to lower insurance costs for Americans
and make sure that homeowners remain insured?
Ms. Nagy. Thank you for that question, Congresswoman
Williams. I am so sorry that happened to you. That is really
not fair because you were doing everything you were supposed
to. You were paying money for your insurance, and it sounds
like they were happy to take your money----
Ms. Williams of Georgia. Every month.
Ms. Nagy. ----when things were going well. Then, all of a
sudden when you need them, once you actually have a problem,
they withdraw coverage. That does not sound like a good
neighbor. That sounds like a fair-weather friend, and you are
not alone. Unfortunately, 400,000 Floridians lost access to
property insurance in 2022 alone, so this is what a lack of
regulation is doing to consumers who are doing nothing wrong,
and this is a real problem and one where the Federal Government
should step in.
Now, obviously, the Federal Government does not regulate
insurance because it is a State issue, but I do think there are
things that States can do or that the Federal Government can
do. I am very interested in examining public reinsurance
options because, as we know, the reinsurance market is global.
They are not even in this country, so we do not have very much
to say about what they are doing with their rates, how they are
setting them. I think that is one major area to explore, and I
think you could have buy-ins like consumer protections. You
cannot just drop people when they have problems. You have to
continue to provide services or have State-run plans that
should be more affordable to you.
Ms. Williams of Georgia. Mr. Chairman, I am out of time,
but I have many more questions because the impact of this is
personal for me and my neighbors. I would love to present them
so that I could get written responses for the record.
Chairman Davidson. For the record.
Ms. Williams of Georgia. Thank you.
Chairman Davidson. I thank the gentlewoman.
The gentleman from New York, Mr. Garbarino, is now
recognized for 5 minutes.
Mr. Garbarino. Thank you. Thank you, Mr. Chairman, and
thank you to the witnesses for being here. Ms. Huey, I want to
start with you. When we talk about this issue, no matter what
trendy new terms or acronyms we are using, I think we are all
mostly in agreement that we should be doing more to make smart
upfront investments in homes and infrastructure that will
ultimately save lives and taxpayer dollars, and do it in a way
that is not burdensome for homeowners or consumers. For
instance, we have all heard the statistic that $1 spent on
resilient construction will save $11 in future costs, but I
think we often talk about this in the context of new
construction, which, while very important, results in us losing
focus on existing homes and ensuring we are giving folks the
tools they need to upgrade older homes that were built long
ago. Can you talk about the costs to homeowners and, frankly,
all Americans, if we continue to ignore older homes and just
focus on new homes?
Ms. Huey. Thank you very much for the question. I really do
think, as I stated earlier, that if we can offer some sort of
incentives to existing homeowners to upgrade their HVAC units,
to increase the energy efficiency of their homes--right now,
the 2021 Energy Code has us going from five air changes to
three air changes in a home. If you have gotten a window
cracked, that could be 30 air changes. The house built in 1970
probably has 30 or 40 air changes in an hour. So if we could
increase the efficiency of those homes, it would go a long way
in helping with climate change. Existing homes are already so
energy-efficient. You are really just tweaking something that
is not going to make a big difference in the energy efficiency
of a home, but it is going to cost a lot in new construction.
Mr. Garbarino. Thank you. Yes, and I just had to have my
air conditioner fixed. It is about 30-some-odd-years-old, it is
in the tank, but it is definitely, I am sure, not very
efficient.
We just talked about new construction a little bit and
making home costs more affordable and just better for
Americans. In New York, there is talk of, and I know my
colleague brought up, a ban on gas stoves. Currently, between
60 and 70 percent of New York families have a natural gas
stove. The State of New York, the Governor, and the legislature
recently pushed for a gas stove ban for new buildings in its
most-recent budget. This first-in-the-nation ban will increase
energy costs for New Yorkers, stress the electric grid, and
eliminate consumer choice, all while having a minimal
environmental impact.
Furthermore, adding further government red tape and
regulation on new construction will further drive up housing
costs and that will price working families out. Unfortunately,
we are seeing these same ill-advised policies pushed on the
Federal level as well, with recent efforts from the Department
of Energy and the Consumer Product Safety Commission.
Ms. Huey, how do these efforts affect the housing industry,
and, if implemented, would these efforts drive up costs for
Americans?
Ms. Huey. Thank you, again, sir, for the question. There
are many homebuyers who want a gas stove in their home; I know
that I do. As a home builder, I believe it is my job to provide
my customers with appliances of their choice. Gas stoves are
used by 40 million homes nationwide and have proven to be a
safe and efficient appliance of choice for families for well
over a century. The recent push from Federal agencies to
regulate gas stoves will drastically limit their availability
across the country.
Recently, for someone, a custom home, and she loves to
cook. I put in one of the gas stoves, and when we were going on
the walkthrough, she looked at me and said, ``Is the government
really going to take my gas stove from me?'' I said, ``No,
ma'am, they are not.'' Thank you.
Mr. Garbarino. New York City is trying to get rid of coal-
fired pizza. It is just brick oven pizza. It is terrible. Last
question, Ms. Huey, for you. Often, overly-rigid local,
environmental, and land use standards prevent homeowners from
being able to make responsible decisions to reduce their risks
in their homes from devastating natural disasters. One example
is California, where stringent building requirements have
hampered infill growth in areas at low risk of wildfires, and
have instead driven homeowners into the highly-vulnerable
wildland urban interface, putting them at increasing risk of
extreme wildfires. Can you talk about the importance of giving
communities the flexibility to force development that lets them
be more self-sufficient and protect themselves in the face of
things like deadly floods, wildfires, and tornadoes?
Ms. Huey. Yes. Thank you again, sir, for the question. I
discussed that a little bit earlier, and I believe it is in my
written testimony. Giving local jurisdictions the choice of
certain codes that they impose, I think, is imperative because
the climate in every municipality is different. I am from
Alabama, from Huntsville down to Mobile, where it is warmer, so
I think it is imperative that we give the choice to those local
municipalities. Thank you.
Mr. Garbarino. Thank you. I yield back.
Chairman Davidson. The gentleman's time has expired. The
gentlewoman from Massachusetts, Ms. Pressley, is now recognized
for 5 minutes.
Ms. Pressley. Thank you, Mr. Chairman. I have been in
Congress now for almost 4 years, but prior to that, I was on
the municipal level for 8 years, and I was an aide for 16
years, so I have been in government long enough to know that it
moves slowly, at a deliberate speed. I am a patient woman, but
on the issue of climate change, we have run out of time, and
now is not the time for anti-science, anti-environment culture
wars. Now is the time for action to confront the climate crisis
because our communities simply cannot afford to wait any
longer.
More and more individual lives are being impacted. More and
more homes and communities are destroyed by natural disasters
each year, whether it is tornado, wildfire, or hurricane, which
is one of the many reasons why I am grateful that President
Biden signed into law my legislation, the Post-Disaster Mental
Health Response Act but to those who would seek to weaponize
what it means to be woke, I am unapologetically woke. I am
awake, and my eyes are wide open, because I owe it to my
constituents to not look away.
In my district, the Massachusetts 7th, failure to address
climate change means greater flood damage to frontline
communities like Chelsea, Everett, and East Boston. To my
colleagues across the aisle who seek to obstruct and oppose
legislation and policies that will help our shared constituents
around the country protect their homes from climate change, it
not only alarming that you would move in this way; it is
downright dangerous.
Ms. Nagy, since U.S. property catastrophic reinsurance
rates increased by as much as 50 percent on July 1st, renewals,
my constituents have had to pay more to protect their homes and
their livelihoods. Can you highlight the impact of these price
increases on the insurance rates paid by consumers?
Ms. Nagy. Yes, thank you, Congresswoman. As I said earlier,
the reinsurance industry is not located in the U.S., so we
really do not have any much of a say over the rates. They tell
insurers, and insurers pay them, and that is how insurers are
able to then offer their products to individuals. So, the idea
of having a public reinsurance option for States to opt into
could be a really powerful incentive to truly limit development
in some of the most disaster-prone areas, because while we can
all agree that folks should not be there, at the local level,
they are often more concerned about property tax revenue above
everything else, so you get this very short-sighted decision-
making.
I think that the Federal Government can do a lot more to
support making our homes more energy-efficient in new
construction by having things like induction stoves, and I
actually did--I am a homeowner who switched out a gas stove for
an induction stove in the last year, and it was not because I
am really woke, or maybe I am, but I do not even know what the
word means anymore, but----
Ms. Pressley. I'm sorry, I have to reclaim my time, only
because I am running out of it. I do have one more question for
you.
Ms. Nagy. Okay.
Ms. Pressley. I did want to say again on the issue of these
price increases on insurance rates, these insurance premiums
will rise for our constituents if insurance companies and their
investors continue to bury their heads in the sand and fail to
account for climate risk. We are already seeing a disturbing
trend with some of the largest companies deciding to stop
selling new policies and leaving people without insurance
coverage at all.
This is all clearly a result of climate change. It is not a
question of whether it is going to happen, because it is
already happening, and investors are saying they do not have a
good sense of the climate risks that companies are facing. That
is why it is critical that the government takes action. True
enough, climate change is an existential threat, and, I would
argue, so are the so-called leaders who deny that it is
happening.
Ms. Nagy, will disclosures for financial and business risks
associated with climate change, like ESG, strengthen our
insurance market and help families protect their homes?
Ms. Nagy. Yes.
Ms. Pressley. Thank you. I agree, and I yield back.
Chairman Davidson. I thank the gentlewoman, and I now
recognize myself for 5 minutes for questions.
We wanted to have this hearing and talk about the dynamics
in the market. Frankly, how do you accurately assess risk and
how do you price risk? It is clear that losses are getting more
frequent and larger, and when you think about insurance, you
have to be able to price that in. It costs more money. It
happens more often. So, how in the world do prices not go up?
They have to go somewhere.
If you look in California, they decided they were going to
impose price controls so that you cannot raise premiums, and
also you cannot drop customers. So, you go on site and you say,
the gasoline stored in the outbuilding next to the pine straw
next to your woodhouse is a risk, we would really like you to
mitigate it. No, and then the insurer still cannot drop the
customer? Are you kidding me? You have to be able to price
risk.
Part of the goal of the recognition of the ESG code that
apparently is going to go out of fashion, if I listen to Larry
Fink--just do not call it ESG--but we are still going to do it.
They will come up with a new label. It is a shape-shifting
ideology, but the reality is we are dealing with more-frequent
and bigger losses. A lot of those are looking at environmental
places like California with wildfires, and Florida with weather
events, flooding, and hurricanes, and in my State, more often,
it is tornadoes, but you have to price that risk in order to
stay in business.
The alternative is things like the National Flood Insurance
Program, where we have actually drafted bills, we have had
hearings on, and we are working to get towards a markup this
year, but they do not have to make money, right? They do not,
so they do not. They lose quite a lot. The Federal Government
offers the National Flood Insurance Program because insurers
cannot really accurately cover all of those things, so it is a
supplement to the market, and the Federal Government is
involved there.
Terrorism risk insurance, another thing the Federal
Government gets involved in. Overwhelmingly, it is a State
issue, and I think the best way to think about housing is as a
State issue. You have different planning and zoning codes
because, frankly, the risk of earthquakes in California is
bigger than it is in Ohio, and we like the idea of building
codes. We do not want things to happen in America like what
happened in Turkey because they did not have big building
codes. We should trust that our buildings are resilient for the
area they are built in but too often, when regulators decide
that they are going to be the ones, central planners are going
to decide instead of the market, they get it wrong, and they
oppose one-size-fits-all rules that do not accommodate all the
flexibility that markets need.
Prior to coming to Congress, I was in manufacturing, and
for me to get the supply chain right to design and build
something, I needed some lead time. Some things we can turn
around quickly, but other things take a little longer.
Mr. Boor, when I think about manufactured housing, part of
the way that we make it affordable is that it is manufactured
on site, all the planning and zoning for electrical and
plumbing and whatnot can be done there, and it is normally
regulated by HUD. Now, we have the Department of Energy
dropping in something that is not only hard to comply with on
the timeline, but it disrupts the regulatory certainty that the
industry needs. Could you talk about how that impacts your
ability to deliver an affordable product?
Mr. Boor. Yes. We are really uncertain where we are going
to be heading from the overlapping requirements by very
different regulators if the DOE process continues. I want to be
clear: We are not talking about not moving the ball forward on
energy efficiency. We are talking about doing it in a holistic
fashion, where the impacts are thought through, and we can make
great strides. I think we are on a path right now where we are
going after, ``E,'' at the expense of, ``S.''
Chairman Davidson. Thank you. Thank you for making that
point, and hopefully, we can remedy it.
Mr. Theodorou, when I think about pricing risk, you have
committed a lot of work to it. I just wonder if you could
highlight some of the issues that we are confronting in the
insurance space?
Mr. Theodorou. Thank you, Chairman Davidson, for the
question. Indeed, the price of reinsurance has risen in the
January 1st renewals, the June 1st renewals, and the July 1st
treaty renewals, and it is a major part of the costs of
insurance policies. After administrative expenses and claims,
is the cost of reinsurance, and it is getting higher. The good
news is that there is capital out there that is coming in:
private capital, pension funds, sovereign wealth funds, and
other asset owners.
Chairman Davidson. I appreciate that. I just have to get
one more question in, but part of the problem for insurance is,
if you cannot insure a site that you are going to develop, it
is hard for builders to do it, and you cannot get the cover to
provide for the market.
Briefly, Ms. Huey, could you highlight the challenge there?
Ms. Huey. Yes. Thank you, Mr. Chairman. On July 1st, FEMA
halted parts of the Mapping Program under the National Flood
Insurance Program. Home builders were getting conditional
letters of map revision and letters of map revision to prove
that the homes they built were no longer in the floodplain,
which requires the homebuyer to purchase flood insurance. By
delaying this program for an indefinite period of time, we have
a great fear that this will only increase the cost of homes. It
is unclear how many future communities----
Chairman Davidson. I apologize, Ms. Huey. Thanks for
getting as much in as you could. My time has expired. I really
appreciate our witnesses for traveling, for being here, and for
providing your expertise, and I thank my colleagues for
spending some extra time, understanding the impact of this
issue. I hope we will inform future legislation.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
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