All-Hazards Homeowners Insurance: Challenges and Opportunities

Abstract

In the United States, standard homeowners insurance policies cover damages resulting from fire, wind, and hail, but exclude damages caused by floods and earthquakes. This is not the practice worldwide: several countries include all perils in homeowners insurance. Building on two fundamental insurance principles — that premiums reflect risk and that support for low-income households come from public funding, not insurance premium subsidies — this paper proposes a strategy for developing an all-hazards homeowners insurance policy in the US that should be attractive to both private insurers and property owners. It outlines critical supporting roles for the public sector and proposes modifications to the National Flood Insurance Program that could provide a foundation for all-hazards insurance.

Keywords: homeowners insurance, disaster, premiums