Trends in the insurance industry have shown that carriers are raising rates, limiting coverages or pulling out of entire markets—often citing catastrophic losses tied to natural disasters. From wildfires in California and tornadoes in the Midwest, to hurricanes along the East Coast, these events are not only more frequent, but also more severe.
As natural disasters become more frequent, the property/casualty insurance system is under increasing strain. Insurers face mounting claims, tighter reinsurance markets and growing uncertainty. So, what can be done to protect consumers and the marketplace?
One long-time proposal is the creation of a National Natural Disaster Insurance Program—like the Terrorism Risk Insurance Program, which was enacted after 9/11 to stabilize the insurance market for terrorism coverage. Under TRIP—in the event of a catastrophic terrorism loss—the federal government shares the burden with private insurers. Could a similar approach help manage the rising risks of natural disasters?
Case for a national fund
Stabilizing the insurance market. After Sept. 11, 2001, the insurance industry faced a crisis: terrorism coverage virtually disappeared from the market. Uncertain of how to price or predict the risk of future attacks, insurers pulled back, and businesses could not secure the coverage they needed to operate or to secure financing. The market had effectively collapsed.
In response, Congress passed the Terrorism Risk Insurance Act, which created a federal backstop for terrorism losses. The program supplemented private insurance to help ensure that in the event of a catastrophic terrorism event, the federal government would share in the losses beyond a certain threshold. TRIA restored confidence, stabilized premiums and allowed insurers to return to the market. More than two decades later, it’s a successful example of a public-private partnership addressing a specific and volatile risk.
Today, the property insurance market is experiencing a similar strain from natural disasters. As climate-driven catastrophes grow more severe and unpredictable, insurers face difficult decisions about when and how they can afford to operate. A national natural disaster fund modeled after TRIA could help fill this gap. A federal backstop for the most extreme natural disaster losses could give insurers the confidence to keep writing policies in vulnerable regions. It wouldn’t eliminate risk, but it would create a framework for managing it—encouraging continued private participation while protecting consumers from sudden coverage disruptions.
Just as TRIA helped stabilize a market shaken by an unprecedented threat, a national disaster fund could do the same in the face of mounting environmental risks.
Encouraging participation and competition. A federal backstop could attract more insurers to offer coverage in high-risk areas because they would not be on the hook for every dollar of catastrophic loss. In turn, this increased competition could lead to better pricing and more choice for consumers.
TRIP has been successful in this regard: By limiting insurer exposure, it has encouraged widespread participation in the terrorism insurance market. A natural disaster counterpart might achieve the same for wildfire and hurricane zones.
Reducing pressure on federal disaster aid. When a major disaster strikes, the federal government often ends up footing the bill through emergency aid and recovery programs like the Federal Emergency Management Agency. A structured, prefunded national insurance program could reduce the burden on taxpayers by helping to ensure that losses are handled through a combination of private insurance and a predictable federal mechanism.
This could shift the disaster response from reactive aid to proactive risk management.
Promoting resilience and risk reduction. With the right design, a national disaster fund could include incentives for mitigation—like discounts for homeowners who harden their homes against wind or fire, or support for communities that invest in resilient infrastructure. The goal would be not just to recover from disasters, but to reduce their impact in the first place.
Case against a national fund
Moral hazard and market distortion. One criticism of the National Flood Insurance Program is that it encourages risky behavior (i.e., building and living in flood-prone areas). A similar criticism could be levied against a federal natural disaster backstop—for both insurers and policyholders. If insurers know the government will cover their worst-case losses, they might underprice risk or fail to promote adequate mitigation. Similarly, homeowners might build or rebuild in high-risk areas, assuming they’ll be protected regardless.
Federal involvement and complexity. The federal government already runs the NFIP, and its challenges are well known—chronic underpricing, growing debt and political resistance to reform. Expanding the federal role in disaster insurance could introduce similar complexities—particularly if pricing is influenced by political rather than actuarial considerations. A poorly designed program could end up distorting the market rather than stabilizing it.
Cost to taxpayers. Even if the fund is designed as a backstop and not a direct payer of claims, the potential cost to taxpayers is significant. For all the stability that TRIP has brought to the terrorism insurance market, the program has never been triggered. As such, the federal government and by extension taxpayers, have not been required to deal with any catastrophic losses. This is unlikely to be the case for a natural disaster fund. The frequency of devasting natural disasters continues to rise, which means a national natural disaster fund could be triggered frequently, and it could have to cover billions in losses.
A conversation worth having …
As disasters grow more severe and the insurance market faces new challenges, the idea of a federal natural disaster fund deserves serious consideration. It’s not a silver bullet, and it comes with trade-offs—but if it is done right, it could be a valuable tool in making sure Americans have access to the coverage they need when disaster strikes.
Just as TRIP brought stability to a market reeling from terrorism risk, a natural disaster backstop could offer a path forward for communities struggling with the effects of climate-driven catastrophes.
This article originally appeared in the September 2025 issue of PIA Magazine.
Bradford J. Lachut, Esq.
Bradford J. Lachut, Esq., joined PIA as government affairs counsel for the Government & Industry Affairs Department in 2012 and then, after a four-month leave, he returned to the association in 2018 as director of government & industry affairs responsible for all legal, government relations and insurance industry liaison programs for the five state associations. Prior to PIA, Brad worked as an attorney for Steven J. Baum PC, in Amherst, and as an associate attorney for the law office of James Morris in Buffalo. He also spent time serving as senior manager of government affairs as the Buffalo Niagara Partnership, a chamber of commerce serving the Buffalo, N.Y., region, his hometown. He received his juris doctorate from Buffalo Law School and his Bachelor of Science degree in Government and Politics from Utica College, Utica, N.Y. Brad is an active Mason and Shriner.
