New Disaster Reinsurance Program Caps Federal Risk at $50 Billion, But States Must Repay Every Penny Plus Interest

The Natural Disaster Risk Reinsurance Program Act establishes a federal backstop for property insurance companies dealing with catastrophic natural disasters—think major hurricanes, earthquakes, or wildfires, but explicitly not floods, which are covered elsewhere. Starting in 2026, the Department of the Treasury would run this program, aiming to keep property insurance available and affordable in high-risk areas.

The Federal Backstop That Comes with a State IOU

This bill works by offering reinsurance to property and casualty insurers—the companies that write homeowners and renters policies for single-family or multifamily residences (SEC. 1). If a participating state gets hit by a certified “covered event,” the program kicks in only after an insurer’s losses in that state pass a very high threshold—the greater of $500 million or 10% of their annual premiums in that state. Above that trigger, the federal government covers 80% of the excess losses. The total federal liability is capped at $50 billion per event, which is a massive safety net.

Here’s the catch, and it’s a big one for taxpayers: While the Treasury funds these payments upfront by issuing bonds (SEC. 2), the money isn’t free. Any state that joins the program must pledge its “full faith and credit” to fully repay the federal advance, plus interest, within 10 years. Essentially, the federal government is offering a giant, interest-bearing line of credit to states to cover their insurers’ catastrophic losses, shifting the ultimate financial burden from the insurance industry’s balance sheet onto the state’s budget and, eventually, its taxpayers.

Who Sets the Trigger and Who Pays the Premium?

To join, a state must get an approved plan from the Treasury Secretary. Crucially, the Secretary must contract with the National Academy of Sciences (NAS) to figure out the appropriate “trigger amount”—the point at which the state’s total industry losses become catastrophic enough to warrant federal help (SEC. 2). The NAS will use risk modeling to set this trigger, reviewing it every two years.

Participating insurers also pay premiums to the Treasury for this coverage, with the amount set by the Secretary based on the risk in that state. If a state is hit and claims exceed the money in the program, the Secretary can impose a surcharge on all participating insurers, capped at 10% of their annual premium (SEC. 1). However, the bill is clear that any funds received by an insurer through this program cannot be used for executive compensation, dividend payments, stock buybacks, or lobbying. This is a smart guardrail designed to ensure public funds stabilize the market, not pad the pockets of company executives.

Real-World Stakes: The Taxpayer Liability

For the average person aged 25 to 45, this bill offers a trade-off. On one hand, if you live in a high-risk coastal or wildfire area, this program could stabilize the market, making sure your homeowner’s insurance policy doesn’t evaporate or become prohibitively expensive after a major disaster. The goal is better availability and affordability.

On the other hand, if your state participates and a major event hits, you, the state taxpayer, are on the hook. Imagine a catastrophic hurricane causes $20 billion in insured losses in a participating state. The federal government issues bonds to pay the insurers, and then the state government has 10 years to repay that $20 billion, plus the interest the Treasury paid to borrow it. This creates a massive contingent liability that could easily force states to raise taxes, cut services, or issue their own bonds to cover the debt. The state’s financial stability is directly tied to the severity and frequency of natural disasters. This is a federally managed program where the states bear the financial risk.