The Most Important Number on the Loan File: How Insurance Premiums Became a Credit Risk

“Brian Shearer argues P&C insurance premiums are over $100 billion too expensive and raises a question every creditor should be asking.”

I don’t usually hand the mic to a law review article on my blog, but Brian Shearer’s piece in the Columbia Business Law Review, “Regulating Insurance as a Public Utility,” is worth your time and it complicates a piece of my own argument in a way I think is healthy.

In my new book, The Storm: Markets Meet Mother Nature, I treat insurance as the transmission belt, the mechanism that carries climate risk out of the atmosphere and into the loan file through insurance premiums, escrow, affordability, and ultimately default rates and collateral impairment.

When I’m looking at a distressed mortgage in a flood zone or a fire corridor, the insurance line is no longer a footnote. It’s frequently what turns a routine monthly payment into mortgage credit risk — the variable that decides whether the loan performs.

Shearer comes at the same market from the legal and regulatory side, and he plants a flag I didn’t expect: that P&C insurance premiums in this country are over $100 billion too expensive — not despite climate change, but on top of it.

His claim is that we’ve quietly forgotten insurance was built and regulated as a quasi-public utility, and that stripping out rate regulation is making an affordability problem worse, not better.

Whether or not you land where he does on the policy fix, the underlying point should stop anyone who trades this paper for a living: some meaningful share of the repricing borrowers are absorbing may be market failure rather than actuarial truth.

For a creditor, that distinction is everything. If the escrow shock is pure climate signal, you model it as a permanent repricing of risk and mark collateral values down accordingly. If part of it is regulatory dysfunction and overcharging, then you’re watching performing borrowers get pushed toward default and the collateral behind them slide toward uninsurable, over a cost that isn’t fully real.

That’s a different problem, with a different policy answer, and a different set of consequences for the paper.

My book argues the market isn’t priced for what’s coming.

Shearer’s argument is that it isn’t priced correctly even for what’s already here.

Those two ideas don’t cancel out. Together they describe a market where the single most important number on the loan file — the price of insurance — has quietly become a dominant input to mortgage credit risk, and it’s being set by a system almost nobody is watching closely enough.

Read it.

Argue with it.

It’s the kind of work that makes the conversation sharper.

Catch you in my next insights,

 – Bill Bymel, Debt Doctor

As always, I’d love to hear your thoughts, feedback, or questions about this topic, episode, the market or the industry.

If someone in your network needs to read this, send it their way.

The Storm: Markets Meet Mother Nature is now officially released and available at Amazon and other major retailers: https://a.co/d/0gPB0yrY

This book and its concepts are drawn from decades of work across real estate, mortgage portfolios, distressed debt, and special assets to open the conversation of how converging forces are reshaping markets and offering the framework for investors and institutions to navigate what comes next.

Reviews say: “The Storm is not just a book, it’s a strategic lens into the future of our industry.”

First Lien Capital specializes in distressed debt and mortgage workout strategies on residential and commercial real estate. First Lien Resolutions provides Special Assets expertise to banks and funds on portfolio risk, recovery strategies, and profitable arbitrage. 

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