Comments on FEMA’s contemplated ‘Disaster Deductible’ Due April 12, 2017

 

Comments are being accepted until April 12, 2017 on a Federal Emergency Management Agency (“FEMA”) concept to implement a Public Assistance deductible that would condition States’ receipt of FEMA reimbursement for the repair and replacement of public infrastructure damaged by a disaster event.

The primary intent of the deductible concept is to incentivize greater State resilience to future disasters, thereby reducing future disaster costs nationally.

The concept for a deductible program responds to calls for FEMA to address the increasing frequency of disaster declarations, particularly smaller events that should be within the capacity of State and local governments, and to decrease Federal disaster costs.

“While increasing the per capita indicator is one way to accomplish this, solely through the transfer of costs from the Federal government to State and local jurisdictions, FEMA believes that doing so would miss a valuable opportunity to increase the nation’s overall disaster resilience, thereby reducing costs for all stakeholders,” the agency noted.

While FEMA seeks comment on all aspects of the deductible concept, in particular it is asking for detailed comment and supporting data on the methodology for calculating each State’s deductible amount, including how FEMA should consider each State’s individual risk and fiscal capacity; and on whether FEMA’s estimates of projected credits for each State are accurate.

In regard to credit for existing insurance coverage for public facilities, assets and infrastructure, FEMA also noted that States have choices when it comes to how they elect to address their disaster risks.  Specifically, some States have chosen to establish dedicated disaster relief funds that can be leveraged to address the costs of disasters without jeopardizing other services and operations. Others have elected to purchase third-party insurance to cover some of those costs, while others have established self-insurance risk pools to better distribute the risk.  Regardless, FEMA said it also may choose to encourage pre-disaster financial preparedness through the proposed deductible program.

Given this goal, FEMA seeks comment on the inclusion of insurance coverage credits in its deductible model, among other components.

The insurance aspects of the model FEMA is currently contemplating include percentage deductible credits for States that elect to utilize insurance policies as a means to address future disaster costs.  To qualify for credit, the insurance policy must cover costs related to losses that would otherwise qualify for reimbursement assistance through the Public Assistance program.  For purposes of the credit, the policies must provide guaranteed coverage for losses from natural hazards, fires, explosions, floods or terrorist attacks.  For a self-insurance fund or risk pool, FEMA would verify through the State Insurance Commissioner, or similar State official, that the fund or pool is actuarially sound and solvent.

This model includes credit based on the aggregate limits of applicable State policies, rather than on the premiums paid for coverage.  Consequently, FEMA believes that States choosing to insure against future disaster risk would have very large overall limits, even though a particular incident would likely only affect a fraction of the total insured property.  For example, if a State maintains $1M policies on 10 facilities across the State, the aggregate limit of the policy coverage is $10M, even though it is unlikely that all 10 facilities will suffer an insured loss at the same time.  FEMA believes this could be a reasonable and equitable approach because both the deductible and insurance coverage levels should largely be driven by each State’s individual risk profile.

This model includes a potential three-tier incentive structure for insurance coverage based upon multiples of each State’s annual deductible amount

On January 20, 2016, FEMA published an Advance Notice of Proposed Rulemaking seeking comment on a Public Assistance deductible concept.  It provided a general description of the concept that many commenters said they found insufficient to provide meaningful comment.

In an effort to offer the public a more detailed deductible concept upon which to provide additional feedback, FEMA has issued this conceptual deductible program, which presents a methodology for calculating deductible amounts based on a combination of each State’s fiscal capacity and disaster risk, a proposed credit structure to reward States for undertaking resilience-building activities, and a description of how FEMA could consider implementing the program.

At this stage of the rulemaking process, the deductible remains only something that FEMA is considering.  FEMA emphasized that the concept is not an actual proposal, but rather merely a description of a direction FEMA could take in future rulemaking in an effort to solicit further feedback from the public.  After considering the comments it receives, or as a result of other factors, FEMA said it may expand on or redevelop this concept.

Quoted today by Bloomberg, FEMA Director Craig Fugate noted “Congress won’t keep spending more money for disaster recovery forever.” 

FEMA declined further comment, but Bloomberg noted that ” . . . whether the Trump Administration pursues the proposed disaster deductible could signal its broader approach to policies aimed at adapting to climate change.  While Trump campaigned against programs to reduce greenhouse-gas emissions, such as the 2015 Paris agreement and the Clean Power Plan, his position isn’t clear on initiatives designed to help Americans cope with the consequences of emissions: heat waves, sea-level rise, and more frequent and intense hurricanes, floods and wildfires.”

To view the Supplemental Advance Notice of Proposed Rulemaking, click here.

 

Florida Flood Hazard Mitigation Bills Filed

Florida Senator Jeff Brandes and State Representative Larry Ahern have filed SB 112 and HB 613, identical bills that would administer a matching grant program for local governments to implement flood hazard risk reduction policies and projects.

 

 

 

Should you have any questions or comments, please contact Colodny Fass.

 

 

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