Understanding Adam Schiff's Federal Reinsurance Bill: Implications for Disaster Coverage

Published Date: 07/27/2024

Understanding Adam Schiff’s Federal Reinsurance Proposal: A National Approach to Disaster Coverage and Market Stability

The growing crisis in California’s insurance market — with insurers pulling back, rates climbing, and coverage disappearing — has become a national conversation. But what if the solution didn’t come from Sacramento, but from Washington, D.C.?

That’s exactly what Representative Adam Schiff’s proposed federal reinsurance bill aims to explore. The concept — though still in its infancy — could reshape how insurance companies nationwide handle catastrophic losses from wildfires, hurricanes, earthquakes, and floods.

In a recent episode of Insurance Hour, host Karl Susman and Assemblyman Tom Lackey discussed the idea, its potential, and its pitfalls. Their conversation reflected both curiosity and caution: a recognition that while new solutions are needed, federal involvement brings its own risks.

Let’s unpack what this proposal entails, how it could impact insurers and policyholders, and why the conversation itself may be just as important as the policy.

The Basics: What Schiff’s Federal Reinsurance Bill Proposes

At its core, the proposal would establish a federal reinsurance fund — a nationwide pool that insurance carriers could pay into. That pool would then serve as a financial backstop for catastrophic events that exceed private insurers’ ability to pay.

As Susman summarized it:

“It’s a federal reinsurance program whereby carriers would contribute to a fund held by the federal government. When a natural disaster fits a certain category — wildfire, flood, earthquake, hurricane — insurers could draw from that pool to cover losses that exceed their capped exposure.”

Think of it as an insurance policy for insurance companies — a safety net to stabilize the industry during extreme disasters.

Susman compared it to the Social Security trust fund, half-jokingly noting, “Of course, they’d never touch it… because that never happens.”

The humor wasn’t lost on Lackey, who responded with cautious optimism:

“I’m open to any kind of solution-driven thought. Partnership might not be a terrible thing — but we’ve seen the federal government also muck things up. So it would definitely need some fine-tuning.”

Why It Matters: From California to Colorado to the Carolinas

While California has become the poster child for insurance turmoil, Susman was quick to point out that the crisis is not a California-only problem.

“Florida has problems. Texas has problems. Louisiana has problems. New York has problems. Colorado is opening up its first FAIR Plan because they’re having wildfire issues that private carriers can’t handle.”

The truth is, climate-related disasters — from floods to hurricanes to wildfires — are intensifying nationwide. Insurance companies are struggling to price risk accurately, regulators are struggling to approve rates fast enough, and consumers are getting squeezed in between.

A federal reinsurance framework, in theory, could stabilize markets across multiple states, spreading risk more evenly across regions.

“If there’s a bad flood somewhere,” Susman explained, “California carriers have paid into this fund. If there’s a wildfire, Texas carriers have paid into this fund. Talk about fair, right?”

That national cross-subsidization, he said, could help balance the scale.

A National Safety Net — or a Bureaucratic Burden?

Lackey was intrigued but wary.

“I think that partnership might not be a terrible thing,” he said, “but we’ve seen the federal government become part of the problem before. We don’t need more problems.”

It’s a valid concern. Federal programs like FEMA and the National Flood Insurance Program (NFIP) — while essential — have long histories of mismanagement and underfunding. Critics argue that another federal pool could simply replicate those problems on a larger scale.

Susman acknowledged that skepticism but noted an important distinction: Schiff’s proposal envisions private insurers continuing to handle underwriting, distribution, and claims — with the federal government simply acting as a catastrophic reinsurer of last resort.

In other words, it wouldn’t replace the insurance market. It would reinforce it.

“It’s the first time I’ve seen discussion of a federally organized plan to be a stopgap for the private insurance industry,” Susman said. “It got me interested — and scared — at the same time.”

The Promise: Stability and Shared Risk

If implemented well, a national reinsurance program could provide several key benefits:

1. Stabilizing volatile markets.
   By capping insurers’ losses during large-scale disasters, the program could encourage more carriers to stay in — or return to — high-risk states like California and Florida.
2. Lowering reinsurance costs.
   Private reinsurers, many based overseas, have drastically increased rates in recent years. A domestic, federally backed alternative could reduce those costs and improve long-term pricing stability.
3. Protecting consumers from market collapse.
   The program could prevent the kind of mass withdrawals and nonrenewals currently devastating homeowners.
4. Encouraging national resilience.
   By pooling risk across regions, the program recognizes that disasters are not local issues — they’re national economic threats.

“It brings to reality the fact that this isn’t just California’s problem,” Susman said. “There are catastrophic events happening all over the country. It’s a national problem.”

The Pitfalls: Politics and Polarization

But if there’s one thing both Susman and Lackey agreed on, it’s that politics could derail even the best-intentioned idea.

“That particular author could be a lightning rod,” Lackey said of Schiff. “You either love him or you despise him. And our country’s in a very dangerous position right now — we’re polarizing. You’re either on our team or the opposing team.”

Lackey warned that the growing partisan divide in American politics could sabotage serious policy discussions before they even start.

“We all need to be the American team,” he said. “We’re supposed to be the United States of America, and we’re becoming the divided states. That’s going to lead to more catastrophic outcomes.”

His hope, he said, is that the insurance debate can be depoliticized — that lawmakers and citizens alike will judge ideas on their merits rather than their authors.

“We need to talk to the issues, not the messengers,” Lackey emphasized. “Let’s stay away from political credit or criticism. Just focus on the solutions.”

A Cultural Shift: Bringing Civility Back to Policy

Beyond the policy itself, the conversation took a reflective turn — toward what Lackey called the “lost art of disagreement.”

“It used to be that people on both sides of the aisle would sit down and talk about something, then go have lunch,” he said. “They didn’t agree on policy — but that was okay. That’s what made the system work.”

Susman agreed, noting that public trust and bipartisanship are just as crucial to market stability as financial mechanisms.

“The generation growing up doesn’t realize that the highest levels of government used to function that way,” Lackey said. “We can fix it, but we have to make it a priority.”

That sentiment — equal parts nostalgia and urgency — underscored the broader theme of the episode: real reform requires collaboration, not confrontation.

A Step Toward National Dialogue

Even if Schiff’s proposal never becomes law, its introduction marks an important shift in the conversation. For the first time, federal lawmakers are acknowledging that insurance instability is a national infrastructure issue, not just a state-level regulatory hiccup.

Just as the federal government plays a role in backstopping banks, supporting agriculture, and responding to natural disasters, there’s a growing recognition that insurance markets themselves need structural support in an era of escalating climate risks.

“It gives me hope,” Susman said. “Because it means people outside California are starting to understand — this isn’t just a ‘California problem.’ This is everyone’s problem.”

Lessons from History: The Federal Flood Insurance Parallel

Schiff’s proposed program bears similarities to the National Flood Insurance Program (NFIP), established in 1968 after private insurers abandoned flood-prone regions.

While the NFIP has faced criticism for inefficiency and debt, it has also provided critical protection for millions of Americans in coastal and riverine communities.

A modern reinsurance program could apply the same principle more broadly — not as a retail insurer like NFIP, but as a federal risk-sharing mechanism that helps private insurers absorb the financial shock of extreme events.

If structured properly, such a system could complement — not replace — state FAIR Plans, the California Earthquake Authority, and private reinsurance markets.

The Real Challenge: Implementation and Trust

Of course, theory and practice are two very different things. Creating a federal reinsurance system would require:

• Defining eligibility: Which disasters qualify?
• Funding the pool: How much should each carrier contribute?
• Oversight and transparency: Who manages the fund, and how do we ensure it’s solvent and untouchable?
• Avoiding dependency: How do we prevent insurers from offloading too much risk onto taxpayers?

As Susman quipped, “The feds would never touch the fund — because that never happens,” underscoring a deep-seated skepticism shared by many industry veterans.

But even if imperfect, the proposal forces a long-overdue conversation about resilience, responsibility, and reform.

The Takeaway: Hope in Honest Conversation

The Insurance Hour episode closed on a hopeful note — not because Schiff’s bill offers an easy fix, but because it opens the door to something deeper: honest, bipartisan discussion about the future of risk in America.

“We can fix it,” Lackey said. “But we have to make it a priority. We have to talk honestly with each other. When people play games, respect disappears — and trust goes with it.”

Susman agreed, adding that the greatest progress will come when policymakers stop treating insurance as a niche issue and start recognizing it as a cornerstone of economic security.

“Insurance is what allows everything else to exist,” he said. “Without it, you can’t build homes, you can’t run businesses, you can’t recover after disasters. It’s the quiet backbone of our economy.”

Whether Schiff’s bill becomes law or not, it represents a symbolic acknowledgment that the U.S. insurance crisis — from California wildfires to Florida hurricanes — demands a coordinated, national response.

And as Lackey reminded listeners, sometimes the most important step toward fixing a problem isn’t passing a bill — it’s starting the conversation honestly.