‘Just Completely Off’: Ron Johnson Blasts Premise Of Hearing On Climate Change & Insurance Rates

last year

During a Senate Budget Committee hearing last week, Sen. Ron Johnson (R-WI) questioned witnesses about issues with the insurance market caused by inflation.

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Transcript

00:00Thank you. Senator Johnson. Thank you Mr. part-time chair but now we got the real

00:06guy back. So first of all I mean I think the premise of this hearing is just

00:13completely off and I think the chart that the chairman talked to you about

00:18Mr. Musilin is indicative of that. So the Florida hurricane catastrophic fund

00:24or catastrophe fund has a shortfall for a year about seven billion dollars right?

00:29Okay. Yes sir. So we've had testimony before this committee that we've already

00:33spent five to six trillion dollars. That's five thousand to six thousand

00:37billion dollars trying to mitigate climate change and we haven't made a dent

00:41in it. You know their estimates it's going to cost tens of trillions of

00:44dollars every year to heat to reach net zero. So again that this is not the

00:49solution for a real problem which is the broken insurance market. I have enough

00:53Wisconsin residents live on the Gulf Coast in Florida to know after Hurricane

00:57Ian we've got some real problems in Florida. But fixing climate change isn't the

01:03solution. So there are other causes and that's what I really want to focus on

01:06with you Dr. Anatony. You talked about inflation, you talked about riots and

01:13lawlessness, you talked about high cost of properties being located in these

01:18vulnerable areas. And then you know Mr. or Commissioner Moretti talked about the

01:24harmful regulations you know price caps. So can you off top your head and nobody's

01:30calculated this but can you give me some sense of what percentage of the of the

01:34total problem is each one of those elements. I mean how much of let's say

01:39it's a hundred billion dollars worth of problem here. How much of that is due to

01:44inflation? How much to the lawlessness, the riots? How much to the high cost of

01:50properties? And then how much has been just for market distortions of pricing

01:55caps and that type of thing? Senator it's a very good question. The only caveat I

01:59want to say in answering this is that much of the regulatory costs actually

02:03get rolled into what we attribute to inflation. The reason for that is because

02:08typically these regulatory costs because it's something being done by government

02:12mandate, those are essentially assumed away under a hedonic adjustment. So if we

02:17can just talk about government action broadly and include both a failure to

02:22respond to criminal activity and inflation and regulatory costs, that

02:26explains 90% approximately of the increase that we have seen in insurance

02:31premiums over the last several years. But I want to zero more. What do you think

02:35inflation is that component? Just straight inflation. I mean again I know

02:39it's government action, but that government action. What percent of its

02:43inflation? Is that half? Is it a quarter? Probably about three quarters, almost

02:47three quarters, Senator. Mr. Moretti, can you confirm that? I just have a personal and

02:54timely example on the impact of inflation. About six months ago we had

02:58our roof replaced in Tulsa, Oklahoma. And 18 months prior I had a proposal to have

03:04the roof replaced. And in that 18 months, almost to the day, 18 months, same roofer,

03:09same roof, same materials. That cost had increased exactly 30% from $20,000 to

03:15$26,000 for a roof that strictly impact on material and labors. So that's

03:19overall, I mean Florida is a just different animal here, right? I mean

03:22Florida's insurance market is completely screwed up because of hurricanes, because

03:28of probably regulation, that type of thing. Insurance conceptually is pretty

03:33simple. You know we all pay a little bit in to protect ourselves against a

03:37catastrophic loss and with the marketplace it moves around. If it's

03:41priced properly, it discourages people from putting high-cost properties in a

03:46very vulnerable area. But it hasn't been priced properly, right? So I guess I'm

03:50kind of wondering for a Wisconsin resident with a Wisconsin house, how much

03:55are our insurance premiums being boosted because the distortion of the

04:01marketplace because of over-regulation? Now in other words, are we paying the

04:06price for all these hurricanes in Florida because the Florida insurance

04:10market is just screwed up? You have reinsurance companies, they're losing

04:14money. And by the way, you did talk about high losses. What is that? I mean how big

04:21a loss was this last year? And is that just loss premium versus payments or did

04:27this go into reserves? Because is that the whole point? You get premiums, you set

04:32up reserves, you have a loss. Generally the reserves ought to cover the loss,

04:35right? You shouldn't be taking them out of premiums. Premiums ought to just be

04:38continue to fill up those reserves. Yes, thank you. And I hate to

04:44oversimplify it, but sometimes I do when speaking publicly back in my state and

04:47that is that you know it's it's not rocket science, it's math. It is premiums

04:52in and claims paid out. And then what's the end result? Of course there's

04:56investments, all things in there. I'm oversimplifying it, but it is math. And

05:00so the insurance companies have the role of determining what that math's

05:04going to be. What do those storms look like? I mean in Oklahoma, we get hit, we

05:09have had a terrible spring. We have had 100 tornadoes this year, but the

05:15previous three years, previous four years, we were substantially below our

05:19average. So you know we've had a rough year. We've had two EF-2s and

05:24so the companies will absorb that. Our role is to make sure they're

05:27financially solvent, they have risk-based capital that we monitor

05:30quarterly, and if they're investing in things that they shouldn't be

05:34investing in or we have concerns, heck if a company drops a certain

05:38percentage of their surplus, they get a letter from me saying, what's your plan?

05:43You've dropped a bit here a little too much in this past year. And so that's

05:47that's what we're monitoring to make sure they can be there to pay their

05:49claims. And like I said, we've had one company leave, we've had no property

05:53companies exit the market. But you've got to have that freedom and flexibility to price properly.

05:57One quick comment, closing comment, is this hearing ought to be called

06:00Riskier Business, How Massive Depth of Spending Which Caused Inflation is

06:04Challenging the Insurance Markets. Would you kind of agree with that, Mr. Antoni?

06:07I could not agree more, Senator.

06:10Thank you.

‘Just Completely Off’: Ron Johnson Blasts Premise Of Hearing On Climate Change & Insurance Rates

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