U.S. states could soon share in the cost of keeping insurers afloat after catastrophic natural disasters anywhere in the country, under a new bill put forth by a Florida congressman.
Rep. Jared Moskowitz’s bill would create a “national catastrophic insurance fund” to help prevent insurers from going bankrupt after paying for catastrophic disaster claims. The fund would cover insurer losses for any catastrophe the National Flood Insurance Program doesn’t cover, including tornadoes, volcanoes, earthquakes, hurricanes, tropical storms, tsunamis, and hail. The bill could also help insurers repay debt and encourage them to stay in high-risk states.
Catastrophic disasters are becoming more common across the U.S., especially in vulnerable states like California and Florida, both of which are facing insurance crises.
How the fund works
After a disaster, unaffected U.S. states would be able to voluntarily purchase U.S. Treasury-issued bonds. Disaster-affected states would distribute the funds to insurance companies based on the number of claims each has. The bill requires insurers to use the funds to cover claims.
The affected state, not the insurance companies, would have to repay the bonds, plus interest, within 10 years.
The effect on insurance and taxpayers
Severe claims losses have affected insurers across the country, pushing some into insolvency and others to withdraw from writing policies in high-risk areas. As homeowners in troubled areas have fewer options for home insurance, remaining insurers typically raise rates to balance their higher risks.
In 2022, 16 insurance companies left Florida, and at least seven left California’s market in late 2023. Insurify’s home report predicts homeowners insurance rates will increase by 6% in 2024. California and Florida should expect an 8% and a 7% increase, respectively.
By helping insurers avoid insolvency, the bill aims to encourage more insurance companies to continue doing business in high-risk states. A South Florida Regional Planning Council study found the bill could stem rate increases by 12% nationally.
But the National Association of Mutual Insurance Companies (NAMIC) opposes the bill.
“This model, which essentially forces the federal government to act as a reinsurer for states, would only be a further drain on taxpayers already subsidizing a rapidly increasing amount of post-disaster costs,” the organization said.
What’s next
While proponents say the bill could help the insurance market, it doesn’t address the root of the problem: climate change. Devastating storms will continue to happen with expensive and deadly consequences, according to the Center for Climate and Energy Solutions.
The NAMIC also has concerns that a national catastrophe fund would reduce the incentive to build resilient communities and homes. But many states and organizations offer discounts for building resilient communities. FEMA offers discounts of up to 45% for flood mitigation efforts. States with high wildfire risk, such as California, Colorado, and Texas, are encouraging communities to build fire-resilient properties.
The bill is currently with the House Financial Services Committee for review.
Related articles
