The Federal Emergency Management Agency a/k/a FEMA provides disaster relief grants to governmental entities under the Stafford Disaster Relief and Emergency Assistance Act (Stafford Act.) Many are not aware that private insurance requirements are imposed on those seeking disaster relief through FEMA grants. Public administrators, government counsel members, their legal counsel, and insurance brokers of public entities in disaster prone areas need to be aware of FEMA regulations imposing insurance requirements under 44 Code of Federal Regulations Secs. 206.250-53.
In Public Entities: How Insurance and FEMA Work Together, Jeb McPherson of MARSH describes the current situation in New Jersey following Superstorm Sandy with a warning:
Prior to Superstorm Sandy, several local governments and public structures had reduced insurance expenditures by either lowering their policy limits or reducing critical coverage sublimits in response to budget deficits. Consequently, in the aftermath of Sandy, many of these entities are facing far greater uninsured property losses than insured losses and are relying on assistance from the Federal Emergency Management Agency (FEMA) to pay for most of their storm-related damage. It is critical for public entities to understand the interplay between insurance and FEMA and to establish claim accounting protocols that satisfy the requirements of both.
The bottom line is that FEMA will provide financial aid to reduce uninsured losses following a declared disaster. However, FEMA expects public entities to be accountable for subsequent disasters caused by the same peril. If a public entity has received FEMA assistance in the past, it should not rely on FEMA to cover the same types of damages in the future. Identifying FEMA’s insurance purchase requirements and verifying that those requirements are satisfied will allow public entities favorable FEMA recovery opportunities in subsequent disasters.
FEMA expects that public entities insure property to the extent insurance is reasonably available. From a leadership standpoint, it is difficult to justify how local governments can expect citizens to fully insure themselves when those government leaders fail to do the same with public property. The Federal Government’s insurance requirements also prevent local governments from planning on the Federal Treasury being a bailout piggybank.