When Enough Is Not Enough: Correcting Market Inefficiencies In The Purchase And Sale Of Residential Property Insurance

Each year at least hundreds, and often thousands of Americans lose their homes to natural disasters striking populated areas. Tens of thousands lose their homes to single-instance fires, floods, or other catastrophes. The majority of these homeowners are underinsured, meaning they have less insurance than it will cost to rebuild their homes. This Article analyzes whether such underinsurance indicates correctible inefficiencies in the residential property insurance markets. The Article identifies two inefficiencies: (1) Inadequate information, which impairs informed pricing decisions by purchasers; and (2) Dispute costs (such as litigation) in the instances of loss exceeding coverage. The Article proposes addressing these inefficiencies by adopting a mandatory disclosure, provided at the time of purchase or renewal of insurance based on the EnergyGuide program labeling appliances for energy consumption, and in turn then barring litigation on adequacy of coverage