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2. My name is Maryann Tumino and I am the State Lead for Insurance at GOHSEP. I’m here to talk to you about insurance as it relates to disaster recovery. Insurance is an Applicant’s primary source of disaster assistance. And there are strict insurance requirements for Applicants who receive FEMA Public Assistance funding. For Applicants who are unable to meet these requirements, there is help.
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3. Before we begin . . .
LDI: Louisiana Department of Insurance NFIP: National Flood Insurance Program O & M: Obtain & Maintain insurance requirement DOB: Duplication of benefits
Before we begin, I’d like to highlight a few key terms and abbreviations that you are likely to hear when talking about insurance with GOHSEP or FEMA beyond today.
LDI is the Louisiana Department of Insurance.
NFIP refers to the National Flood Insurance Program which is a Federal program that provides access to affordable flood insurance protection.
O&M refers to the Obtain and Maintain requirement for recipients of FEMA Public Assistance funding. This means that, when a facility receives FEMA funding for repairs to eligible damages, an applicant is required to insure the facility at least to the level of the eligible damages. We’ll talk more about this in a few minutes.
D-O-B refers to duplication of benefits. What this means is that, if you receive insurance proceeds for a damaged facility, FEMA funding may supplement those proceeds, if needed, but it will not pay for damage that is already covered by insurance.
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4. Authorities
Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), § 311.
44 Code of Federal Regulations (CFR), § through §
Section 311 of the Stafford Act, along with Title 44 of the Code of Federal Regulations, lays out the rules of the road as they relate to insurance and FEMA Public Assistance. Our job, at GOHSEP, is to work with you and help you navigate the road successfully.
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5. Why is insurance important?
We are in harms way.
Risk management is first line of defense.
Be aware of special insurance requirements for Federal assistance.
Focus on what you need to know now.
As Louisianians, we all know that we are potentially in harms way. We live in the most disaster-prone state in the nation. So…how can we best protect ourselves? Well, in addition to mitigation activities, rebuilding, and building new construction stronger, safer, and in ways that are more resilient, making us better able to withstand the next disaster, we can look to the protection that insurance affords us. Proper risk management is your first line of defense.
You also need to be aware of the special and unique federal insurance requirements that come with receiving FEMA Public Assistance.
We won’t run the gamut with an entire insurance seminar today; but instead, we’ll focus on some key areas that are important for you to know now.
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6. Sources of recovery funding
Primary: Your insurance.
Supplemental: FEMA Public Assistance (PA).
Local resources to fill gaps.
It is so important to remember that your primary source of recovery funding is your own insurance. FEMA assistance is intended to supplement your insurance. And yet, there will be times when these two might not cover all the damages and you’ll have to rely on local resources to fill the gaps.
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7. Local resources Insurance
So please remember, Insurance is primary, FEMA is supplemental, and local resources are to fill the gaps. Understanding the rules and nuances of how insurance and FEMA work together and how to best utilize these two sources will help minimize the amount of your own local resources that must be expended in recovering from a disaster.
Insurance
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8. How insurance relates to Federal assistance programs
You are your own risk manager.
FEMA encourages prudent risk management . . .
Unique FEMA PA insurance requirements.
So, how do you do that? Well, first and foremost, it’s important to understand that YOU are your own risk manager. So, you should be thinking about what your greatest risks are and, when it comes to insurance, where you are covered and where there might be gaps in coverage, leaving your community vulnerable. It is up to individual entities to practice prudent risk management.
FEMA encourages prudent risk management through its unique insurance requirements. Some or all of these requirements could apply to you so we’ll talk about what they are and what you need to do to plan appropriately.
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9. FEMA: Insurable facilities
Insurance generally covers . . .
Buildings
Contents of buildings
Vehicles
Equipment
Now, during the course of this discussion, you’ll hear me refer to “insurable facilities.” When I say insurable facilities, I am referring to those items that insurance generally covers such as buildings, the contents of those buildings, vehicles, and equipment. There may be other assets that you choose to insure but, as it relates to FEMA, these are what FEMA considers insurable facilities.
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10. Obtain & Maintain
FEMA Public Assistance (PA) Applicants must obtain and maintain (O & M) insurance . . .
On facilities that have previously received FEMA PA.
To be eligible for future PA funding.
One of the unique requirements of the FEMA Public Assistance program is what is commonly referred to as the Obtain and Maintain requirement. What this means is that, if you receive FEMA funding to repair a damaged insurable facility, you must obtain insurance on that facility at least to the level of the eligible damages. Further, you must maintain that insurance moving forward in order to be eligible for future Public Assistance funding.
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11. Obtain & Maintain (Continued . . . )
No FEMA insurance requirement before first disaster.
“First bite at the apple.”
FEMA pays for damages only once.
Please note that, if you’ve never received any FEMA funding, then there is no insurance requirement imposed by FEMA for you…they call this the “first bite at the apple.” Basically means that FEMA will pay for damages once, but will not pay for the same damages a second time.
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12. For example, let’s say you own 5 buildings that have never received any FEMA funding. They are all eligible for that first bite at the apple. Now, let’s say 3 of them are damaged and receive FEMA funding for a first disaster, but the other 2 do not. Those 3 must now be insured to at least the level of eligible damages because FEMA won’t pay for those same damages again in a second disaster; however, the 2 that did not receive FEMA funding are still eligible for that first bite at the apple. What this means is that the requirement is per facility, not per applicant.
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13. FEMA-required O & M coverage
Full amount of eligible damages.
All or nothing proposition.
Example: $2M insurance for $3M damages
For the peril causing the previous damage.
Insurance must be obtained for at least the full amount of eligible damages to insurable facilities, not just to the level of FEMA funding received. With FEMA, this is an all or nothing deal; if you do not FULLY insure after receiving FEMA funding, FEMA will not even entertain requests for assistance in future events. For example, you cannot insure 75% of the eligible damages to a facility and expect FEMA to provide assistance on a prorated basis; that just won’t happen. It’s all or nothing.
Additionally, insurance must be obtained for the specific peril that caused the damage.
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14. Obtain & Maintain (O & M) First Disaster
FEMA PA eligible damages $2,000,000
Wind + rain damages $1,500,000
Flood damage $ 500,000
O & M requirement $2,000,000
Property insurance (wind + rain) $1,500,000
Flood insurance $ 500,000
Let’s go through a quick, and very basic, example to help illustrate the obtain and maintain requirement, just to make sure we’re all clear on the concept. For an applicant receiving FEMA public assistance funding, let’s imagine the applicant sustained a total of 2 million dollars of eligible damage to their facility. Let’s say that 1 million, 5 hundred thousand is from wind and rain damage, and the remaining 5 hundred thousand is attributable to flood. Very simply, the applicant will have to obtain and maintain insurance for at least 2 million dollars on that facility; 1 million, 5 hundred thousand of that insurance should be property insurance, and will need to include wind and rain coverage. The 5 hundred thousand dollar balance must be flood insurance.
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15. Obtain & Maintain (O & M) Second Disaster
Subsequent PA eligible damages $3,000,000 O & M from previous damages $2,000,000 FEMA PA eligible damages $1,000,000 O & M requirement $3,000,000
Now let’s consider the same facility is impacted by a second disaster and sustains a total of three million dollars in eligible damages. Well, right off the bat, this applicant would be responsible for having insured up to at least the two million dollars in eligible damages from the first disaster. So now, those insurance proceeds could be supplemented by FEMA public assistance funding of one million dollars. Then, moving forward, the applicant’s new O&M requirement will bump up to three million dollars to cover all the eligible damages from this second disaster. What happens if you can’t meet these insurance requirements?
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16. Additional authorities . . .
Insurance Commissioner’s 2010 Letter to the President.
ldi.louisiana.gov/Whats_New/StaffordAct-Obama.PDF
In 2010, the Louisiana Insurance Commissioner sent a letter to President Obama establishing that certain types or levels of insurance are not reasonably available in the state. As a result, many applicants are unable to meet their Obtain & Maintain requirements. Well, the Stafford Act authorizes the state insurance commissioner to set reasonability standards, so the solution is an Insurance Commissioner’s Certification. What an Insurance Commissioner’s Certification does is it certifies that you have done all that you reasonably can to meet your Obtain and Maintain requirement and waives the excess portion of the requirement beyond that reasonable amount. You can view the letter on the Louisiana Department of Insurance website, and I encourage you to do so.
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17. Insurance Commissioner’s Certification (ICC)
If you cannot reasonably meet the Obtain & Maintain requirement . . .
Remember: It’s an all or nothing proposition.
Apply for an Insurance Commissioner’s Certification (ICC).
So what do you do if you cannot meet your obtain & maintain requirement? And remember, as we discussed earlier, with FEMA it’s an all or nothing proposition; you have to fully insure to at least the level of eligible damages. But, like I mentioned earlier, we’re here to help. If you cannot reasonably meet your Obtain & Maintain requirement, you may apply for an Insurance Commissioner’s Certification (ICC) from the Louisiana Department of Insurance (LDI).
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18. Insurance Commissioner’s Certification (ICC) (Continued . . . )
OR if your insurance is a blanket policy . . .
Apply for an ICC.
Additionally, if you utilize a blanket-type policy for insuring your facilities, it is recommended that you apply for an ICC.
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19. ICC application process
Complete ICC application + forward to GOHSEP.
Application is online at LouisianaPA.com.
We are here to help.
Now let’s talk about the process for obtaining an Insurance Commissioner’s Certification. We ask that you complete an ICC application and forward it to GOHSEP. A sample copy of the application is in the packet you received today. You will also find an electronic version of the ICC application on LouisianaPA.com or you may call GOHSEP and we will the application directly to you.
Again, I’d like to stress that we are here to help. And I don’t mean just today. If you have any questions as to whether you’re a viable candidate for an ICC or if you run into trouble as you begin completing the ICC application, I welcome you to call us; we’re available to assist you with completing the application and compiling the information needed.
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20. ICC application process (Continued . . . )
GOHSEP reviews for completeness and sends to Insurance Commissioner for review and consideration.
When GOHSEP receives your completed application, we’ll inventory the documentation for completeness. During this process, it might be necessary for us to ask for additional information from you prior to forwarding your application to the Louisiana Department of Insurance for their review and consideration.
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21. ICC application process (Continued . . . )
Louisiana Commissioner of Insurance makes final determination.
Ultimately, the Louisiana Commissioner of Insurance makes the final determination on granting an ICC.
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22. ICC Application form
Basic contact information.
Organization.
Disaster.
Peril.
As I mentioned a few moments ago, in the packet that you were given today, there is a sample copy the ICC application form. If you would please take out that form, entitled “Insurance Commissioner’s Certification Application,” I’d like to talk about that form for a minute and explain what information we’re asking you to provide when you apply for an ICC. In addition to basic contact information, you’re asked to identify the type of organization you have. In choosing your organization type, you’ll see that a specific percentage is assigned to each organization type. This percentage indicates the portion of your operating budget that, at a minimum, the Insurance Commissioner deems must be spent on your insurance program, separate from Business Interruption coverage. For example, local governmental entities are required to spend a minimum of 0.33% of their annual operating budget on insurance coverage. Non-profit trusts must spend a minimum of 1.41%.
You’re also asked to identify for which disaster you are applying for an ICC. This information is needed because an ICC must be renewed with each disaster for which you receive FEMA funding. And you’re asked to identify the peril from which you sustained damage. This is needed to ensure that the appropriate type of insurance is obtained based on the cause of the damage.
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23. ICC Application form (Continued . . . )
Operating budget.
Current total insurance expenditure.
Percentage of budget expended on insurance.
You’re asked to provide budget information and insurance expenditures in order to demonstrate that you expend, at a minimum, the percentage identified by the insurance Commissioner for your type of organization. That’s the percentage from the table that we just talked about. When completing this application form, you’re going to notice that there are certain nuances in the calculations and we encourage you to call us if you have any questions at all. We’re available to help.
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24. ICC Application form (Continued . . . )
Deductible cannot exceed 15%.
Please note that the Insurance Commissioner’s criteria for an ICC, as identified in the Commissioner’s 2010 letter to the president, dictates that deductibles not exceed 15%.
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25. Current Insurance Policy Summary
(NFIP + Property Coverage + Wind + Excess Flood)
If you’ll turn to the second page of the ICC application form, you’ll see a table entitled Current Insurance Policy Summary where you’re asked to enter the carrier, type, limits and other pertinent information about your insurance program. The Louisiana Department of Insurance uses this information in their overall review of ICC applications.
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26. ICC Application form (Continued . . . )
Insurance Commissioner’s Certification application checklist.
Certification statement.
A checklist of required documentation is provided on the last page of the ICC application form, along with a certification statement where an authorized signatory must attest to the accuracy of the information provided.
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27. When you apply for an ICC, you will be required to submit several pieces of documentation along with this application form that we have just discussed. The checklist on the last page of the application form identifies all of this documentation.
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28. ICC Application documentation
Applicant’s prior year, audited financial statement OR current operating budget.
The first item you’re asked to provide is documentation of your financials. This can be in the form of an audited financial statement or an operating budget. Since these figures are required to be entered on the application form, you’re asked to supplement that information with backup documentation.
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29. ICC Application documentation (Continued . . . )
Copies of all property and flood insurance policies in place at the time of loss.
Including NFIP.
You’re asked to provide several pieces of insurance documentation. The Louisiana Department of Insurance requests that you submit copies of all property and flood insurance policies that you were maintaining at the time of the disaster. This documentation provides the Commissioner with some benchmark information for potential comparison purposes.
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30. ICC Application documentation (Continued . . . )
Copies of all current property and flood insurance policies
Including NFIP.
Current property and flood insurance policies are requested to demonstrate the levels of coverage that you have obtained subsequent to receiving FEMA public assistance funding.
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31. ICC Application documentation (Continued . . . )
Copies of statement of loss for the disaster.
From insurance company.
Date of loss, locations, items damaged, values, etc.
A statement of loss provided by your insurance company is required. This is also commonly referred to as a proof of loss statement, and it outlines detailed information about the loss that occurred. This information includes the date of the incident, the locations, the items damaged, the stated value of those items and the total amount of the claim. And while these loss statements can vary slightly, this is the basic information included in all of them.
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32. ICC Application documentation (Continued . . . )
Copies of insurance quotes/declinations obtained for the current policy period.
You’re asked to provide copies of insurance quotes and declinations that you have obtained for your current policy period. This documentation will demonstrate your ability or difficulty in obtaining the coverage required, either in terms of the availability of the coverage or the price.
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33. ICC Application documentation (Continued . . . )
List of all previously damaged facilities that received FEMA Public Assistance (PA) funding.
Including Project Worksheet (PW) numbers.
Insurance coverage applied to facilities.
Finally, a list of all previously damaged facilities that received FEMA Public Assistance funding is required. With this list, you’ll be asked to provide the insurance coverage that has been applied to each damaged insurable facility, in the form of a spreadsheet.
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34. Insurance should be purchased . . .
National Flood Insurance Program (NFIP) insurance.
All flood damaged facilities that received assistance whether in flood zone or not.
In addition to the Insurance Commissioner’s Certification application form and supporting documentation to be submitted if you plan to seek an ICC, the Commissioner has set forth certain guidelines for procuring insurance. Once you calculate your minimum insurance budget like we talked about earlier, you are required to purchase insurance in the following sequence. First, the maximum allowable amount of insurance from the National Flood Insurance Program (NFIP) should be procured for all flood damaged facilities that received FEMA public assistance funding, whether they are in a flood zone or not.
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35. Insurance should be purchased . . . (Continued . . . )
Property insurance:
To include wind and other perils, exclusive of flood.
This is to be followed by property insurance, including wind and other perils, but exclusive of flood, up to the replacement cost.
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36. Insurance should be purchased . . . (Continued . . . )
Commercial flood insurance:
If the full amount of FEMA assistance exceeds NFIP limits;
AND the peril is flood.
With any remaining funds, commercial excess flood insurance coverage is to be procured. Excess flood insurance is needed if the full amount of FEMA assistance provided for flood damage exceeds the coverage available through the National Flood Insurance Program (NFIP). This is particularly critical if the peril for which FEMA assistance was received is flood.
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37. To help you better understand the Insurance Commissioner’s Certification and how to apply, we are also providing you with a brochure that captures what’s been discussed here today. Inside the brochure is a one page insert containing the same checklist as is on the ICC application form. (HOLD UP BROCHURE)
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38. Duplication of benefits (DOB) & insurance settlements
FEMA funding is supplemental.
Disclose insurance proceeds (+ all other funding sources).
Anticipated reductions will be taken.
Now, I’m going to switch gears a little bit here from the Insurance Commissioner’s Certification. As I had briefly mentioned at the very beginning of this discussion, Duplication of Benefits, or DOB for short, is a term commonly used in the disaster recovery world. What this means is that, if you receive insurance proceeds for a damaged facility, FEMA funding may only supplement those proceeds, if needed, but it will not pay for damage that is already covered by insurance. If you request FEMA disaster assistance, you will be required to disclose any insurance proceeds you receive; as well as any funding that you might receive from any other sources. FEMA will not pay for damages already covered by other sources and will reduce funding by the amount received elsewhere. In fact, what FEMA does, if final insurance settlement proceeds are not immediately available, FEMA will reduce funding by “anticipated insurance proceeds.” That means that they will estimate what your insurance will pay and deduct that from the total eligible damages. Once insurance settlements are finalized, they will adjust the estimated, or anticipated reductions, to reflect actual insurance proceeds.
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39. DEDUCTIBLES Pre-Katrina/Rita
FEMA funded deductibles as a portion of eligible costs.
FEMA traditionally funded deductibles on subsequent disasters of same type.
Historically, FEMA has funded insurance deductibles on the basis that deductibles were paid by the applicant “out-of-pocket” and were, therefore, considered a portion of the eligible costs not covered by insurance. Further, FEMA has also traditionally funded deductibles on subsequent disasters of the same type.
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40. DEDUCTIBLES Post-Katrina/Rita
FEMA’s current position: Fund deductible for first disaster but not for second.
FEMA’s current position is that a deductible, up to and including the amount of eligible damage incurred in a previous disaster, is not eligible for the same facility in a subsequent disaster of the same type. Only the portion of a deductible in excess of the previous disaster damage is eligible.
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41. DEDUCTIBLES
Commissioner of Insurance position: Insurance Commissioner’s Certification will waive reduction for second deductible.
Recommendation: Apply for an ICC.
The position of the Louisiana Commissioner of Insurance maintains that an Insurance Commissioner’s Certification, or an ICC as we discussed earlier, will waive the reduction for a second deductible. GOHSEP is currently working with FEMA Headquarters and the Louisiana Congressional Delegation on resolving this issue as FEMA will ultimately have the final say in deciding the outcome. Therefore, our best recommendation is that you err on the side of caution and apply for an Insurance Commissioner’s Certification pending final resolution of this issue.
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42. QUESTIONS?
Remember, there is a Question card in your packet. If you have questions about the ICC or the process, write them down and we’ll address them at this afternoon’s Q & A session.
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43. To learn more . . .
3.shtm Obama.PDF
For some useful information to keep handy on the obtain and maintain requirements and the ICC, you can also visit these websites. The first is a fact sheet provided by FEMA on insurance considerations for Applicants. The second is the letter from the Louisiana Commissioner of Insurance to President Obama which details the requirements for an ICC.
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44. OR contact GOHSEP Insurance Team Maryann Tumino 225.267.2829
If you have any questions while completing the ICC application, please don’t hesitate to contact me.
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