Federal Catastrophe Reinsurance Program Set to Backstop Insurers, Requiring New Loss Prevention Partnerships

The “Incorporating National Support for Unprecedented Risks and Emergencies Act”—or the INSURE Act—is setting up a massive federal safety net for property insurance companies. This bill creates the Catastrophic Property Loss Reinsurance Program, which essentially makes the U.S. government the insurer for the insurers when truly devastating disasters hit. The Secretary of the Treasury is tasked with getting this program running within four years, providing a backstop to stabilize the market against major events like hurricanes, wildfires, and floods, with coverage for different perils phasing in over the next six years.

The Government Becomes the Insurance Backstop

Think of this as a federal insurance policy for your insurance company. If a major catastrophe blows through and an insurer’s losses hit a certain financial trigger—which the Secretary sets, but can’t be more than 40% of their probable maximum loss for that event—the federal program steps in to cover the rest. This system is funded by premiums paid by participating insurers into the Federal Catastrophe Reinsurance Fund. Here’s the critical part for taxpayers: if that Fund runs out of money, the Secretary is authorized to issue notes and bonds fully guaranteed by the U.S. government, meaning the full faith and credit of the U.S. stands behind those payments (Sec. 3(i)). This move is designed to keep the insurance market stable, but it also means taxpayers ultimately bear the risk if the Fund fails to cover massive losses.

The Catch: All-Perils and Loss Mitigation

For an insurer to join this federal program, they must meet two big requirements that directly affect homeowners and businesses. First, they must offer an “all-perils property insurance policy,” covering everything from wind and fire to flood and, eventually, earthquake (Sec. 2). Second, and this is key, they must partner with the policyholder to encourage activities that reduce losses from disasters (Sec. 3(d)). The bill explicitly states that simply giving a discount for an investment you make doesn't count as a partnership unless the insurer also invests. For homeowners, this means that getting or keeping coverage may become conditional upon investing in specific mitigation efforts, such as installing storm shutters or updating fire-resistant landscaping.

The Five-Year Policy Lock-In

The INSURE Act also launches a pilot program for long-term property insurance policies lasting at least five years (Sec. 5). This is a big deal for people trying to budget. If you get one of these policies, the insurer cannot raise your premium during that five-year term just because they reassessed the specific flood or wildfire risk in your neighborhood. They can only raise it based on things like general construction cost indexes or if you add new coverage. This provides welcome predictability for homeowners, especially those in high-risk zones.

However, there’s a major clawback provision in this pilot program (Sec. 5(d)). If you receive federal, state, or local funds—or funds from the insurer—to make property improvements for loss prevention, and then you cancel that five-year policy early, you have to pay back a proportional share of that improvement money. For instance, if you get a $10,000 grant to elevate your home against flood risk and cancel the policy after two years, you might have to repay $6,000. This is designed to prevent people from taking the money and immediately switching insurers, but it could financially trap someone who needs to move quickly for a job or family emergency.

The Data Harvest and Future Studies

Finally, the bill mandates a massive data collection effort (Sec. 3(j)). Participating insurers must report detailed policy-level claim transaction data every quarter. This data will be shared with federal agencies like the Office of Financial Research (OFR) and the Federal Insurance Office (FIO) to monitor for systemic risk and under-insurance issues. While this transparency is aimed at improving market stability, it represents a significant new compliance burden for insurers and a huge amount of personal data flowing into federal databases. Furthermore, the Secretary must conduct feasibility studies on two major topics: creating a fund to help relocate homes and businesses in areas too damaged to insure, and whether earthquake coverage should be mandatory in standard all-perils policies (Sec. 4). These studies signal that the government is already looking ahead to potentially address properties that this new reinsurance program won't be able to save.