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Generally, eligible uninsured losses in FEMA’s Public Assistance Program include the following items:39

• Reasonable deductible in the applicant’s first claimed FEMA assistance if the cost is accrued to the applicant.

• Depreciation; (i.e., differences in FEMA eligible costs and final loss valuations used by insurers); and

• Costs in excess of an insurance policy limits, including sub-limits for certain hazards (such as flood or earthquake)

38 _{Michael D. Beard, Department of Homeland Security—Office of Inspector General,}

“FEMA’s Process for tracking Public Assistance Insurance Requirements,” OIG-12-18 (December 2011).

39 _{Federal Emergency Management Agency, Public Assistance Guide (Washington, D.C.:}

FEMA 322, June 2007), 122.

The existing law, regulation, and policy on insurance provide direction and guidance to FEMA, the state, tribes, and the local jurisdictions. However, these source documents are not clear in their direction and guidance. They do not promote sound risk management and efficient insurance coverage decision- making in order to promote fair and equitable burden for the applicant, the state, tribes, FEMA, and the taxpayer.

The Robert T. Stafford Relief and Emergency Assistance Act provides appropriate guidance on the statutory treatment of insurance in the reimbursement of damages as a result of a presidentially declared disaster. Several statutory components in the law are critical to the importance of insurance and Congress’s intent on insurance coverage and requirements.

The law requires insurance for assistance provided in a previous event to protect against future loss to such property.40 _{This obtain and maintain}

requirement ensures that the federal investment in a previous event is protected in subsequent, similar events.

The law recognizes the authority of the State Insurance Commissioner as the regulator of insurance and the law protects the authority of the role of the commissioner. This acknowledgement in law ensures insurance greater than types and extent of insurance that are certified by the insurance commissioner shall not be required.41 _{The provision protects the importance of the State’s}

Insurance Commissioner as the regulator authority for insurance. The law provides guidance to ensure that a state may act as a self-insurer and solidifies the state’s ability to make such an election. The law also restricts federal assistance to personal, residential, or commercial property if flood insurance was not obtained and maintained.42

The 44 Code of Federal Regulations is not as clear in guidance on the treatment of insurance. The regulation provides guidance on insurance for facilities damaged by flood and other than flood. For facilities damaged by flood, the guidance is clear on facilities in a Special Flood Hazard Area. A reduction of assistance will be the maximum amount of insurance proceeds available in a standard flood insurance policy.43 _{This reduction is the eligible disaster damage}

related costs minus insurance proceeds or mandatory reduction if the facility is not insured.

For facilities damaged by other than flood, the regulation is not as clear. The regulation requires an insurance reduction for eligible costs by the actual amount of insurance proceeds, provides guidance on the obtain and maintain requirements for previous damages, affords the Insurance Commissioner the appropriate authority under the law, and provides guidance on the blanket insurance policies or insurance pool arrangement.44 _{There is no requirement of}

insurance in current guidance.

FEMA provides policy guidance through the Public Assistance Digest, Public Assistance Guide, and a FEMA Disaster Assistance Policy on “Insurance Considerations for Field Staff.” In February 2013, FEMA rescinded Disaster Assistance Policy 9580.3, which provided answers for “Insurance Considerations for Applicants.” This policy provided clarification for insurance deductibles. The policy restricted the reimbursement of a previously funded deductible or portion of that deductible on a subsequent event. As a result, the reimbursement of deductibles in a second or subsequent event is now eligible in some circumstances.

In its current status, the regulation on insurance as related to the Public Assistance program is dated and has not kept up with the complexity of the insurance industry. Current regulation was drafted as an interim rule on

43 _{44CFR, § 206.252(a).} 44 _{Ibid., § 206.253.}

December 11, 1991.45 _{This interim rule has been surpassed by an evolving and}

complex insurance industry.

Current law, regulation, and policy do not encourage insurance and hazard mitigation as directed by the Stafford Act. Regulation has yet to be promulgated for implementing a reduced federal share for facilities that have been damaged, on more than one occasion within the preceding 10-year period, by the same type of event; and the owner of which has failed to implement appropriate mitigation measures to address the hazard that caused the damage to the facility. Current law, regulation, and policy do not encourage facility owners to make sound insurance and risk management decisions in order to best protect themselves.

State, tribal, and local jurisdictions evaluate insurance protection that maximizes coverage while minimizing cost. Government policy should encourage flexibility of jurisdictions to make insurance risk management decisions that protect the taxpayer and limit a reliance on the federal support.