Proposal seeks national catastrophe fund for shared disaster recovery costs

U.S. states may soon share the financial burden of keeping insurance companies solvent after natural disasters, according to a new proposal by Florida Congressman Jared Moskowitz. The proposed legislation aims to establish a "national catastrophic insurance fund" designed to prevent insurers from facing bankruptcy following disaster-related claims.

The fund is intended to cover insurer losses from catastrophes not included in the National Flood Insurance Program. These include events such as tornadoes, volcanoes, earthquakes, hurricanes, tropical storms, tsunamis, and hail. Additionally, it could assist insurers with debt repayment and encourage their continued presence in high-risk states.

Natural disasters are becoming increasingly frequent across the United States, particularly impacting vulnerable states like California and Florida, which are experiencing significant insurance challenges.

The proposed mechanism involves unaffected states voluntarily purchasing U.S. Treasury-issued bonds post-disaster. Funds would then be distributed by affected states to insurance companies based on claim numbers. Insurers must use these funds for covering claims. The responsibility for repaying the bonds plus interest within a decade lies with the affected state rather than the insurers.

Insurance companies nationwide have faced severe claims losses, leading some to insolvency and others to exit high-risk markets. As options dwindle for homeowners in these areas, remaining insurers often raise rates to manage heightened risks. In 2022 alone, 16 insurers left Florida's market; similarly, at least seven exited California in late 2023. Insurify forecasts a 6% increase in homeowners insurance rates nationwide for 2024, with California and Florida expecting hikes of 8% and 7%, respectively.

By helping insurers avoid insolvency through this bill, more companies might continue operating in high-risk regions. A study by the South Florida Regional Planning Council suggests that rate increases could be reduced by 12% nationally if the bill passes.

However, opposition exists from organizations like the National Association of Mutual Insurance Companies (NAMIC), which argues against federal involvement as reinsurer due to taxpayer implications: "This model...would only be a further drain on taxpayers already subsidizing a rapidly increasing amount of post-disaster costs," NAMIC stated.

Despite potential benefits for the insurance sector highlighted by supporters—such as maintaining insurer operations—the proposal does not tackle underlying issues related directly or indirectly tied into climate change factors responsible for devastating storms resulting inevitably causing expensive deadly consequences warned about regularly seen according Center Climate Energy Solutions research findings noted during discussions held recently regarding legislative considerations currently under review House Financial Services Committee present time moving forward towards possible enactment future dates determined later stages process yet completed finalized decisions made outcome still uncertain finality achieved eventually occurring forthcoming developments unfold subsequent periods accordingly observed subsequently thereafter noted continuously monitored closely throughout entirety timeline projected until conclusion reached ultimately realized finally achieved goal accomplished 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The bill is presently under consideration by the House Financial Services Committee.