Issue Brief

All-Hazards Homeowners Insurance: A Possibility for the United States?

Feb 16, 2017 | Howard Kunreuther


For all-hazards insurance to work in the United States, insurers must be allowed to charge risk-based rates. Property owners would then have an incentive to invest in loss reduction measures that reduce claims and thus lower the price of insurance.

Key Findings

  • In the United States, standard homeowners insurance policies do not include coverage for earthquakes or floods.
  • Individuals often ignore potential disasters and overreact to recent ones, causing many to buy insurance only after a loss and to cancel coverage when they haven’t had a claim. They may treat insurance as an investment rather than a protective measure.
  • For all-hazards homeowners insurance policies to work effectively in the United States, insurers must be allowed to charge risk-based premiums so individuals have economic incentives to adopt cost-effective hazard mitigation measures.
  • The public sector has a role in addressing affordability of coverage for lower-income residents and potentially helping to backstop catastrophic losses.
  • Reauthorization of the National Flood Insurance Program provides an opportunity to implement reform—a long-term risk reduction and affordability strategy that could extend to other extreme events, thus providing a foundation for all-hazards policies.