In response to the increasing costs and risks associated with catastrophic events, there is a notable surge in legislative efforts at both the Federal and State levels, according to Goldman Sachs.
Notably, California Representative Adam Schiff has introduced a bill, known as the INSURE Act (H.R. 6944), aiming to create a Federal Catastrophic Property Loss Reinsurance Program.
The INSURE Act proposes the establishment of a federal catastrophe reinsurance fund, overseen by the U.S. Treasury, with the potential to significantly impact the insurance industry.
If enacted, this fund could undercut traditional reinsurance pricing by supplementing reinsurance capacity, particularly in high-risk areas like California. The proposal aims to subsidise higher risk zones, potentially shifting the burden of risk to a federal fund.
Introduced on January 10, 2024, the INSURE Act seeks to create a catastrophic property reinsurance program for qualifying primary insurers.
These insurers include those providing all-perils property coverage for residential or commercial properties and engaging in loss prevention partnerships to reduce insured and economic losses from catastrophe perils.
While the bill is a response to the elevated cost of insurance in high-catastrophe zones, its implications would take several years to come into effect.
The proposal suggests implementation no later than four years following enactment, with coverage gradually increasing over subsequent years, starting with flood peril coverage in the first year.
The proposed reinsurance limits are not explicitly disclosed in the bill, but indications suggest an amount not exceeding 40% of the Peak Model Losses (PMLs) of each insurer’s individual catastrophe peril included in the program.
Furthermore, the INSURE Act includes grants on a step-up basis, starting at $50 billion in 2026 and increasing by $5 billion annually to reach $70 billion in 2030.
These grants aim to incentivise participating insurers, policyholders, and states to invest in activities that reduce long-term loss risk. The proposal also encourages states to mandate insurers to offer an all-perils property insurance policy.
Despite being in the early stages, the proposal has sparked debates, as seen in a hearing on September 7, 2023, by the Committee on Banking, Housing, and Urban Affairs. Expectations are that there will be opposition to the bill as it progresses.
Additionally, Florida is taking its own approach to counter the rising costs of insurance and reinsurance with House Bill 1213, the report noted.
This proposal aims to modify the coverage provided by Citizens, Florida’s state-run insurer of last resort, shifting towards a single-peril coverage structure similar to the National Flood Insurance Program (NFIP).
However, concerns have been raised regarding the solvency of restructuring Citizens in this manner, considering NFIP’s debt carry and previously forgiven debt, the report noted.
