Treasury Secretary Janet Yellen said the weather-related havoc playing out across the US is exposing a “protection gap” for Americans seeking insurance against property losses.
Yellen, who also chairs the Financial Stability Oversight Council, said that a spate of extreme weather events is causing insurers to raise rates on homeowners. Some firms have withdrawn entirely from offering coverage in areas deemed to be high risk, she added.
Heat waves have been especially widespread and persistent in the US this summer, with some 170 million Americans under excessive heat warnings and advisories as of Thursday. Wildfires have also plagued western states and parts of eastern Canada, while floods caused severe damage in Vermont.
“American households are already seeing the impacts even if their own homes have not been damaged,” Yellen said Friday at an FSOC meeting in Washington. “As a result, more households are turning to residual markets for coverage or are foregoing insurance entirely.”
In 2020, Yellen added, just 60% of the $165 billion in total economic losses from climate-related disasters were covered by insurance.
Yellen said it’s necessary for FSOC to examine how these shifts may affect the wider financial system.
“In addition to challenges to households, we must also better understand the implications of changes in property insurance for real estate markets and financial institutions that rely on insurers to help manage risks,” she said.
FSOC, established after the global financial crisis to identify and address systemic vulnerabilities in the US financial system, includes the heads of the Treasury Department, Federal Reserve, Federal Deposit Insurance Corp. and Securities and Exchange Commission, among other regulators.