The Enshittification of Private Insurance

This is why regulating insurers at the state level turns out to be a really bad idea.

One of the more prescient books of our still-young century was Jacob Hacker’s The Great Risk Shift (2008), which explained how government and business were conspiring to eliminate various protections that in the past helped cushion the middle class from financial setbacks. Hacker called for an “insurance and opportunity society” with more robust pension guarantees, less-contingent forms of employment, and universal health care, among other reforms. Without a firm cushion, he argued, people wouldn’t take the sort of financial risks that make capitalism function at peak capacity.

By “insurance,” Hacker mostly meant social insurance provided by the government, sometimes in concert with private insurance companies. Hacker warned that private insurance was never going to pick up the slack. “Although markets work splendidly in most areas of commerce,” he wrote, “insurance markets often fail when we need them most.” Hacker didn’t give the private insurance industry much additional thought, except for health insurance, then inextricably tangled up with government through Medicare and Medicaid (and, after the book’s publication, with Obamacare).

But lately we’ve been seeing insurance markets fail outside the realm of social insurance, suggesting The Great Risk Shift had more applicability than perhaps the author knew. The most conspicuous instance is homeowner’s insurance. In addition to the growing unaffordability of housing, Americans are being priced out of protection for their property against fires, floods, and other acts of God. A survey by the online lending website Lending Tree found that between 2020 and 2025 home insurance rates rose 46 percent nationally. That was nearly double the rate of inflation. 

Climate change clearly plays a significant role here. Insurance rates must be approved by state regulators, so rates vary from state to state. In five states, inflation exceeded homeowner’s insurance increases—West Virginia, Vermont, Maine, Alaska, and New York. What do these states have in common? According to Lending Tree, “none of the states … are in areas typically prone to hurricanes, wildfires and other major, costly weather-related disasters.”

But climate can’t be the only reason, because Colorado, which had the biggest rate increase, ranks relatively low on climate-change risk, whereas New York and Maine rank relatively high, and Florida, where climate-change risk is the highest in the country, lies in the middle range for rate increases. In a May survey by the Pew Research Center, 65 percent of homeowners cited as a major reason for property-insurance rate hikes “insurance companies wanting to make more money.” Only 46 percent cited climate change. 

Insurance companies will always want to make more money—it would be perverse for them not to—so what this poll finding suggests to me is that in states where homeowner’s insurance rates are rising fastest state regulators aren’t moving aggressively enough to impose limits. If climate change were the........

© New Republic