H.R. 10686: Community Disaster Protection Act

This bill would direct FEMA, through the Department of Homeland Security, to create a pilot grant program within 1 year to help certain public or community-based groups develop community-based catastrophe insurance. The goal is to create insurance products that cover losses from natural disasters or other hazards for a defined community, especially where traditional insurance is unavailable, unaffordable, or under strain.

What the program is for

The grants could support work that helps communities:

• design or launch disaster-related insurance products;
• study local insurance gaps, affordability problems, and disaster recovery needs;
• educate and enroll residents and businesses;
• use risk models and hazard data to estimate losses;
• build parametric insurance products, which pay out when a preset event or threshold is met rather than after a detailed loss adjustment;
• set up legal, actuarial, and administrative systems needed to run the program;
• create payment systems so claims or benefits can be paid quickly after a disaster;
• find non-federal funding sources, such as state or local money, philanthropy, community finance, insurance-linked securities, or other risk capital.

Who could receive grants

Eligible “covered entities” would include states, tribal governments, political subdivisions, Native Hawaiian organizations, Alaska Native Corporations, community nonprofits, and other stakeholders approved by FEMA, so long as they are authorized under state insurance law to perform the activities involved.

How the insurance products would have to work

Insurance programs supported by the grants would have to:

• supplement existing private insurance, not replace it;
• cover only specified natural hazards or disasters;
• use clear consumer disclosures in plain language and common community languages;
• explain what is covered, what is excluded, and how the product interacts with other insurance and disaster aid;
• disclose who bears the risk, whether that entity has a financial rating, and whether guaranty protection applies;
• describe premium assistance, cancellation rules, voluntary participation, claims processes, and how the program ends if it is discontinued;
• keep premiums actuarially sound and transparent;
• encourage risk reduction and resilience measures in the community;
• use streamlined enrollment and claims processes where possible.

If a program is parametric, it would have to use objective trigger conditions, try to reduce “basis risk” (the chance that the payout does not match actual losses), and explain these differences clearly to consumers.

State law and regulation

The bill says state insurance laws remain in control. It does not let FEMA or the federal government approve insurance products, set rates, license insurers or producers, or take over other state regulatory functions. Before offering a product, covered entities would need to seek confirmation from state regulators about whether the product counts as insurance under state law and what filings or licenses are required.

How FEMA would run the pilot

FEMA would have to issue guidance within 180 days covering application rules, evaluation criteria, allowable costs, state-regulator coordination, and data reporting. FEMA would also consult with the National Association of Insurance Commissioners, state regulators, Treasury’s Federal Insurance Office, covered entities, and private insurance-market participants.

Grant awards would be made competitively, with FEMA trying to choose projects that:

• cover different regions, demographics, and disaster-risk situations;
• focus on communities with high exposure to losses;
• can identify enough capital and partnerships to last beyond the pilot.

Reporting and review

The pilot would end on September 30, 2031. The Government Accountability Office would have to study the program during the pilot and again after it ends, looking at things like payout speed, affordability, participation, administrative costs, consumer understanding, recovery results, and barriers to wider use. Covered entities receiving grants would have to provide data to GAO, but not proprietary or trade-secret information.

Funding

The bill authorizes $20 million per year for fiscal years 2027 through 2031 to carry out the grant program.

Relevant Companies

None found