Louisiana Flood Insurance Payouts Likely Under $3B: FEMA

Daily Report for Executives provides in-depth coverage of unfolding legislative, regulatory, and judicial news from the nation’s capital, the states, and around the world. This daily news service...

By Brandon Ross

Aug. 22 — The National Flood Insurance Program can cover payouts stemming from the catastrophic flooding in Louisiana with the $3 billion it has on hand, program head Roy Wright told Bloomberg BNA as he arrived in the devastated state.

“Until I can start seeing what the average claim is, I can't figure out what the upper range might be,” Wright, the Federal Emergency Management Agency's deputy associate administrator for insurance and mitigation, said by phone Aug. 22. But he added: “We have enough funds available to cover all these claims.”

The flood insurance program has $1.7 billion in primary funds and $1.34 billion in reserve funds available, he said (See previous story, 07/01/16). When the NFIP runs out of money to pay claims, it can request more funds from Congress, which Wright doesn't expect to be necessary in this case. Congress is seeking ways to entice more private-sector participation in the risky flood insurance market to alleviate the cost to taxpayers of the NFIP, which is $23 billion in debt after hurricanes like Sandy and Katrina as well as other recent major disasters (See previous story, 07/07/16).

FEMA has paid $15 million in advance payouts in Louisiana, which range from $5,000 to $10,000 per customer, based on which coverage option was elected, Wright said. But the total claims amount is expected to rise once the agency actually processes claims, which involves sending out adjusters to inspect damages and determine final payments. The advance payouts are being provided ahead of any inspections to get some immediate relief to NFIP customers, Wright said.

Louisiana Is Testing Ground

The early payouts are an example of how the program is implementing overhauls made about a year and a half ago, in light of criticism FEMA faced from storm victims and lawmakers over the handling of Hurricane Sandy payouts.

“Over the last year and a half, we’ve been putting a whole series of changes [in place] that are aimed at improving the customer experience,” Wright said. The changes include the advance payments and a longer grace period, announced Aug. 22, for customers to renew their policies. The period went from 30 days to 120.

“You’ll see [the changes] in the quality assurance we’re doing to make sure people are getting the right amount of money [on claims] the first time,” he said.

Wright said the catastrophe in Louisiana will allow the agency to evaluate the effectiveness of its overhaul.

“I’m seeing the opportunity to see the fruition of the changes that were put in place,” he said.

Grants

FEMA is also giving out grants to thousands of people without flood insurance policies.

There's a $33,000 cap on those grants, Wright confirmed, which is far below what can be obtained with an NFIP policy. Furthermore, most grants are far less than $33,000. So far, FEMA has paid out more than $74 million in grants for about 100,000 people.

The grants are “not designed to be an insurance policy,” Wright said. “It’s designed to be a life vest, not a life boat. It will not make them whole again.”

Wright said he expects the number of grant recipients will grow. But, “That’s not the only aid available to them,” he added. FEMA is advising non-policyholders to seek low-interest loans from the Small Business Administration, of up to $200,000 for eligible homeowners or $40,000 for renters, he said.

With global warming pointing toward more frequent and intense natural disasters in the coming decades, Wright cautioned property owners against only buying coverage if they are in a mandatory flood zone.

“Everyone needs flood insurance,” he said.

To contact the reporter on this story: Brandon Ross in Washington at bross@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.