In June, the Federal Emergency Management Agency changed the insurance requirements local governments and nonprofits must meet to be eligible for public aid, potentially leaving nonprofts and governments responsible for paying deductibles that in some cases now cost tens of millions of dollars.
Louisiana Insurance Commissioner Jim Donelon has written President Bush, seeking to have the requirements waived. New Orleans insurance agent Hartwig Moss III has set up a meeting for public officials to help organizations find out what they need to do if they want to try to become exempt.
FEMA used to pay the deductibles. But a little-noticed memo issued June 4 stated FEMA wouldn’t pay the same type deductible it had paid before. That means, if an entity got FEMA’s help paying a deductible at any time on a given building, it would be on its own if a storm affected the same structure again.
“We believe that the vast majority of those in the not-for-profit and governmental communities are completely unaware of these issues and the potential for extremely serious consequences for their organization and indeed, for our community, as a result of these changes,” Moss said.
Dan Jilek, public assistance insurance specialist at the state homeland security department, said state government is exempt since it’s allowed to have a formal program of self-insurance. But the rules, which come into play when the president issues a disaster declaration, could affect parish governments and nonprofits.
A nonprofit client of Moss’ once had a deductible of 2 percent of the value of the property; that meant a $6.8 million deductible on a Hurricane Katrina-related claim. But with the current limited availability and rising cost of insurance, the nonprofit has a 5 percent deductible and would have to pay $26 million to $30 million before its insurance coverage – and public aid from FEMA – came into play.
“If you take that safety net out, they’re gone,” Moss said. “All of that infrastructure in this community is toast. I don’t know how they would ever come back.”
The change isn’t specific to New Orleans, and doesn’t explicitly limit the change to hurricanes and floods.
James Walke, FEMA’s director of the Public Assistance Division, said FEMA won’t pay a deductible a second time on the same building, up to the amount of aid provided initially. He said this would have bearing any previous disaster in which FEMA provided public assistance funding.
The changes also require public entities have insurance coverage up to the level of whatever public assistance grant they received in the past, whether for wind or flood damage – basically requiring coverage on a property’s full value, Jilek said.
That could be a problem with flood coverage, he and Moss said: the National Flood Insurance Program only sells up to $500,000 in building and $500,000 in contents coverage per structure – and the market for additional flood coverage is limited since Katrina hit in August 2005.
As FEMA developed the rules, it circulated for comment a draft to the National Emergency Management Association, the National Governors Association, the National Association of Counties and other trade organizations, Walke said, and posted it on the FEMA Web site. Moss said insurance agents with nonprofit groups he’d contacted weren’t aware of the new rules.
The rules say the requirements can be waived by the FEMA regional administrator if the state insurance commissioner certifies that the mandated insurance isn’t reasonably available. In Donelon’s letter to President Bush, he says the insurance isn’t reasonably available in Louisiana.
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