State reinsurance programs keep failing - and a senior reinsurance industry leader says that is because they are solving the wrong problem entirely.
Between 2017 and 2026, reinsurers paid out 95% of the premiums they received from US homeowners’ insurers in claims payments and operating expenses. After accounting for the reinsurance industry's costs and margin, the net cost of reinsurance to the consumer amounts to less than one cent per dollar of premium. That figure comes from Karalee Morell, executive vice president and general counsel of the Reinsurance Association of America, and it sits alongside a growing wave of state legislative proposals - in Colorado, Idaho, and elsewhere - that frame reinsurance costs as the central driver of insurance unaffordability.
"Creating state-backed pools to address reinsurance costs means developing a solution that addresses the wrong problem," Morell said. "The factors like severe weather events and legal system abuse are the actual drivers of insurance costs."
Two forces drive property insurance costs upward. The first is the increasing frequency and severity of weather-related losses. The second, in a number of states, is litigation.
Legal system abuse - covering inflated claims, organized fraud, and attorney fee arrangements that incentivize litigation over settlement - drives up property and casualty insurance costs at a scale that dwarfs the cost of reinsurance itself. "Legal system abuse massively drives up property and casualty insurance costs," Morell said. Florida enacted comprehensive tort reform in 2024. Claims costs and litigation volume fell measurably. Georgia and Louisiana moved in similar directions and recorded comparable improvements.
The contrast with state reinsurance programs is direct. Tort reform addresses the underlying cost of claims. A reinsurance facility addresses how those costs are financed after the fact.
State-backed reinsurance pools carry a structural flaw that Morell identified precisely: they aggregate high-risk exposure geographically and by peril, producing a non-diversified pool that is the opposite of how private reinsurance markets work. Private reinsurance spreads risk globally across thousands of uncorrelated exposures. State programs frequently lack pre-funded assets and underprice expected losses as a matter of policy, to keep consumer costs low in the near term.
"There's not enough money to be able to do what a reinsurance company does," Morell said. When a significant event occurs, inadequate coverage leads to post-event debt issuance or policyholder assessments that ultimately cost consumers more than the premium savings delivered before the event. Colorado's 2025 reinsurance facility proposal arrived with literally no funding mechanism.
"Creating state-backed pools to address reinsurance costs means developing a solution that addresses the wrong problem. The factors like severe weather events and legal system abuse are the actual drivers of insurance costs."
Resilience measures take years to show benefits. Legislators want results they can announce this session. That gap explains the persistence of state reinsurance proposals despite the evidence against them.
"Mitigation and resilience is a long-term solution that requires time, money, and community-based investment," Morell said. "But from a political standpoint, legislators want solutions they can discuss immediately to show they're acting now."
Florida's tort reform offers a counterexample: a politically difficult intervention that produced verifiable, near-term results. It is also instructive that Florida pursued reform of the litigation environment rather than the reinsurance market - a distinction that Morell's data supports.
Morell does not argue against public sector involvement in insurance markets. The National Flood Insurance Program, the California Earthquake Authority, TWIA, and state fair plans all play legitimate roles, with private reinsurers providing capital to those programs.
"Programs work best as markets of last resort rather than first resort," Morell said. Effective programs price risk appropriately, maintain genuine coordination between state administrators and private capital, and function as backstops rather than primary markets.
Alternative capital structures are filling gaps that state programs have not. Catastrophe bonds and parametric insurance have expanded beyond property risk into casualty and cyber lines, and Morell points to these instruments as a private-market evolution in risk transfer that can address the same availability problems that state reinsurance is being asked to solve - with the structural advantage of diversification that state pools cannot replicate.
