FEMA requiring hefty insurance

By Rebecca Mowbray
Times-Picayune

NEW ORLEANS — If a hurricane hits this season, some local governments, hospitals, schools and museums might find themselves ineligible for federal disaster assistance because of a Federal Emergency Management Agency requirement that they carry more insurance than what may be realistically available on the market.

(AP Photo/Kevin Sanders)

"This is a serious concern as of right now," said Todd Thomas, a consultant who made waiver applications on behalf of eight local entities, including the city of New Orleans; Jefferson, Plaquemines and Terrebonne parishes; the town of Kenner; and Jesuit High School.

Any entity that receives public assistance from FEMA must carry insurance on the peril that damaged its property at least to the level of the grant it got. For example, if a school got $3 million from the government to repair flood damage, it must carry at least $3 million in flood coverage going forward. It's a requirement of the Stafford Act designed to make sure that grant recipients don't stay on the dole and are properly insured next time.

But many local governments or nonprofits say they can't buy the insurance they need to satisfy the rules because excess flood insurance beyond the $500,000 commercial policy limits of the National Flood Insurance Program is expensive and not widely available.

Recognizing the gravity of the situation and the number of entities in south Louisiana that might be affected, last August the Louisiana Department of Insurance set up a standard annual process to certify that groups could not satisfy the rules because of local insurance market conditions.

But FEMA says it does not accept the process set up by the state Insurance Department. The agency has concerns about the global waiver effort given the region's poor track record of having insurance coverage. It says it does not have enough information about individual buildings owned by local governments or school departments or hospital districts to dispense with the insurance requirements.

"At this point, we have not granted waivers, because we do not have the certifications represented by the insurance commissioner," said Jim Stark, director of the FEMA Louisiana Transitional Recovery Office.

The news has been a stunner for local bodies that sought waivers, because they thought when Insurance Commissioner Jim Donelon signed off on their applications, that they didn't have to worry about FEMA's insurance requirements.

"They're supposed to accept it," Thomas said. "Up until this recent letter, we have operated under the assumption that we had a waiver, because we have a letter from the commissioner."

In June, Donelon wrote to FEMA requesting a meeting to resolve the issue, which has been languishing for 11 months.

"It is troublesome that we find ourselves where we are on this matter at this time, since we understood that the approach that my office developed with considerable input from GOHSEP (the Governor's Office of Homeland Security and Emergency Preparedness) and FEMA was a workable, logical, sound process," Donelon's letter reads. "As we are now into the 2008 hurricane season and we are approaching the third anniversary of Hurricanes Katrina and Rita, it is paramount that we immediately resolve any outstanding issues related to the processing of Stafford Act waiver requests."

FEMA, the Insurance Department and officials with the Governor's Office of Homeland Security and Emergency Preparedness have a meeting today to discuss the issue.

After the 2005 hurricanes, commercial insurance prices skyrocketed, and in many cases, coverage for wind and flood wasn't available at any price. But John L. "Johnny" Beckmann III, president of Independent Insurance Agents of Greater New Orleans and vice president of the J. Everett Eaves Inc. insurance agency, said the situation has improved since then.

Commercial insurance, the class of insurance that large entities like local governments or museums would buy, has become more widely available, and prices began falling late last year. And in the last few months, excess flood coverage, or flood insurance above the limits of the National Flood Insurance Program, has started to become available.

But that doesn't mean that prices have come down enough for groups to afford the insurance necessary to meet FEMA's insurance requirements.

Beckmann said that he ran into the issue in the private sector when some big New York investment banks started demanding full insurance coverage of some clients in New Orleans. It wasn't until their own brokers were unable to place the coverage that they accepted that their insurance rules were absurd. "Their own brokers couldn't (do) it. That's how they backed down," he said.

FEMA has yet to draw the same conclusion. The agency says it needs more detailed information about each applicant -- information that the Insurance Department says defeats the purpose of creating a standard waiver process.

FEMA notes that Louisiana's global waiver effort is unusual. It prefers Mississippi's approach, which considers situations by individual FEMA project worksheet to mirror how the government tracks reimbursements.

Louisiana says breaking down waiver requests by project worksheet is a lot more work, since a local government might have hundreds of buildings with different flood claims, but it's complying.

"We've done about 10 of them, but none of them have been acted upon," said Warren Byrd, executive counsel of the Insurance Department. "I can understand how they wanted a letter that's PW specific. On the other hand, this has gone on a long, long time."

Copyright 2008 The Times-Picayune Publishing Company