Adam Schiff’s Federal Reinsurance Proposal Explained

Published Date: 07/27/2024

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 early stages — 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: an acknowledgment that while new solutions are urgently 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.

What Schiff’s Federal Reinsurance Bill Proposes

At its core, the proposal would establish a federal reinsurance fund — a nationwide pool that insurance carriers would 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.”

In simple terms, it’s an “insurance policy for insurance companies” — a safety net designed to stabilize the industry during extreme disasters.

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

Lackey responded with cautious openness:

“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 a Federal Reinsurance Program Matters

While California has become the poster child for insurance turmoil, Susman was quick to emphasize that this is not just a California 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.”

Climate-related disasters — from floods to hurricanes to wildfires — are intensifying nationwide. Insurers are struggling to price risk accurately. Regulators are struggling to approve rate increases fast enough. Consumers are caught in the middle.

In theory, a federal reinsurance framework could stabilize multiple state markets by spreading catastrophic risk 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 kind of national cross-subsidization would help balance the scale between regions facing different types of disasters.

National Safety Net or New Bureaucratic Burden?

Lackey found the idea intriguing but remained 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 histories of mismanagement, underfunding, and political interference. Critics worry that another federal pool could simply replicate those problems on a broader scale.

Susman acknowledged that skepticism but highlighted a key distinction: Schiff’s proposal envisions private insurers continuing to handle underwriting, distribution, and claims, with the federal government serving only as a catastrophic reinsurer of last resort.

In other words, it would not replace the private 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 Potential Benefits of a Federal Reinsurance Fund

If implemented effectively, a national reinsurance program could offer several important benefits:

• Stabilizing volatile markets
  By capping insurers’ exposure during large-scale disasters, the program could encourage more carriers to stay in — or return to — high-risk states like California, Florida, and Louisiana.
• Reducing reinsurance costs
  Private reinsurers, many based overseas, have sharply raised prices in recent years. A domestic, federally backed alternative could offer more predictable and potentially lower long-term costs.
• Protecting consumers from market collapse
  A backstop could help prevent the kind of mass nonrenewals and withdrawals that are currently leaving homeowners with few or no options.
• Recognizing disasters as a national risk
  By pooling risk across states, the program would treat wildfires, hurricanes, and floods as national economic threats — not just local or state-level issues.

“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.”

Politics, Polarization, and Policy Risk

If there is one thing both Susman and Lackey agreed on, it’s that politics could derail even the best-designed proposal.

Speaking about Schiff, Lackey noted:

“That particular author could be a lightning rod. 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.”

He warned that deepening partisan divides could sabotage serious policy discussions before they even begin.

“We all need to be the American team,” Lackey 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 is that the insurance debate can be depoliticized — that lawmakers and citizens will judge ideas on their substance, not their sponsors.

“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.”

Relearning the Lost Art of Disagreement

The conversation soon turned from policy mechanics to political culture.

“It used to be that people on both sides of the aisle would sit down and talk about something, then go have lunch,” Lackey recalled. “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 for market stability as any financial instrument.

“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.”

Their broader message: real reform, whether in insurance or any other sector, requires collaboration rather than constant confrontation.

A Shift Toward National Dialogue on Insurance Risk

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

Just as the federal government backstops banks, supports agriculture, and funds disaster response, there is a growing recognition that insurance markets themselves may need structural support in an era of escalating climate risk.

“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.”

Parallels to Federal Flood Insurance

Schiff’s proposed framework has clear parallels to the National Flood Insurance Program (NFIP), created in 1968 after private insurers largely withdrew from flood-prone areas.

While the NFIP has its critics — particularly around inefficiency and long-term debt — it has also provided critical coverage for millions of Americans in coastal and riverine communities.

A modern reinsurance program could apply a similar principle more broadly, not by selling policies directly like NFIP, but by acting as a federal risk-sharing mechanism that helps private insurers absorb extreme losses.

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

The Real Challenge: Implementation and Trust

Turning the concept into reality would raise a host of practical questions:

• Which events qualify?
  Clear criteria would be needed to define which disasters trigger access to the federal fund.
• How is the pool funded?
  Policymakers would have to decide how much each carrier contributes and how contributions are calculated.
• Who oversees the fund?
  Strong governance, transparency, and safeguards would be essential to maintain solvency and prevent misuse.
• How do we avoid dependency?
  The system would need guardrails to ensure insurers do not offload excessive risk onto taxpayers or rely on the fund in place of sound underwriting.

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

Still, even an imperfect proposal forces a necessary conversation about resilience, responsibility, and reform in the insurance system.

The Takeaway: Hope in Honest Conversation

The Insurance Hour episode closed on a cautiously hopeful note — not because Schiff’s bill offers a quick fix, but because it opens the door to a deeper, national discussion about the future of risk management 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, arguing that policymakers need to stop treating insurance as a niche issue and start recognizing it as foundational to economic stability.

“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 proposal becomes law or not, it signals a growing awareness that the insurance crisis — from California wildfires to Florida hurricanes — requires a coordinated, national response.

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