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GovStar guide · FEMA Recovery Policy FP 206-086-1

FEMA Public Assistance Policy on Insurance

The official FEMA policy on insurance in Public Assistance, organized the way applicants use it: the § 311 obtain-and-maintain requirement, how to modify it and the State Insurance Commissioner’s role, § 312 duplication of benefits, and § 406(d) flood reductions.

§ 311Insure what FEMA rebuilds, against the hazard that damaged it
§ 312FEMA reduces aid by actual or anticipated proceeds
§ 406(d)Uninsured flood damage in an SFHA is reduced by the SFIP maximum
CommissionerCertifies what’s reasonable; cannot waive federal requirements

1 · Overview

What the policy covers

Status: FP 206-086-1 was issued June 29, 2015, for major disasters declared on or after that date. FEMA has since carried its provisions into the Public Assistance Program and Policy Guide. For current disasters, follow the PAPPG v5.0 insurance sections wherever they differ.

Authorities

  • Stafford Act §§ 311 (insurance), 312 (duplication of benefits), 406 (repair and replacement), 422 (simplified procedures), 428 (alternative procedures).
  • Flood Disaster Protection Act of 1973, §§ 102 and 202.
  • 44 CFR 206.250–253 (insurance), 206.252 (flood) and 206.253 (other hazards).

Key terms in the policy

  • Facility: any building, works, system or equipment, or improved natural feature; used interchangeably with “property.”
  • Hazard: the peril, meaning the cause of loss.
  • Blanket policy: one policy covering multiple coverages or properties.
  • Insurance pool: two or more entities sharing risk under a contract, governed by a member board.
  • Self-insurance plan: formal, dedicated self-funding with fixed contributions and a plan to pay losses, not a “rainy-day fund.”
  • Self-insured retention: retained risk below an excess layer; not a self-insurance plan.
  • SFHA / SFIP: Special Flood Hazard Area; Standard Flood Insurance Policy.
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2 · Stafford Act § 311 · Policy Part 1(A)–(B)

The requirement to obtain and maintain insurance

When FEMA funds permanent work to replace, restore, repair, reconstruct or construct a facility, the applicant must insure that facility against future loss. FEMA calls this the “obtain and maintain” or insurance requirement.

What it applies to
  • A condition of FEMA assistance, required by law.
  • Buildings, contents, equipment and vehicles.
  • Not temporary facilities.
  • Covers grants under §§ 406, 422 and 428.
How much
  • “Types” = the hazard(s) that caused the damage; “extent” = the amount.
  • Based on eligible costs before reductions (such as insurance proceeds), including both federal and non-federal shares.
  • Costs for items that aren’t buildings, contents, equipment or vehicles are subtracted.
  • No requirement if eligible costs (before reductions) are under $5,000.
Which hazards
  • Insure against the hazard(s) that caused the damage.
  • Multiple hazards: insure each in proportion to the damage it caused.
  • Even if that means broader coverage, such as an all-risk policy to get wind.
  • Relocated out of an SFHA: flood may not be required, but an all-hazards or other appropriate policy is.

Notice: before project approval, FEMA tells the applicant the initial types and extent of insurance it must obtain and maintain. That amount can be modified under Parts 1(D) and 1(E), covered below.

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3 · Policy Part 1(C)

Ways to comply

Accepted coverage
  • Commercial property insurance, including blanket policies.
  • Standard Flood Insurance Policies (NFIP).
  • Insurance pools.
  • Any combination of these.
  • With FEMA approval, a self-insurance plan.

Retained risk

  • Deductibles and self-insured retentions are expected; no insurer takes 100% of the risk.
  • FEMA doesn’t prescribe a “reasonable” amount of retained risk.
Self-insurance plans
  • Requested in writing to FEMA through the Recipient, with the plan, when accepting assistance or later.
  • The plan should state its authority; its funding (fixed contributions and a formal way to pay losses); how funds are distributed; the hazards covered; any commercial, NFIP, pool or reinsurance layers; and an inventory with locations and current replacement costs.
  • In an SFHA: FEMA considers self-insurance only after the NFIP purchase requirement is met.
  • Only the Federal Insurance Administrator can approve state self-insurance to meet the NFIP purchase requirement, and that approval doesn’t satisfy § 311 for other hazards.
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4 · Policy Part 1(D)

Requesting a modification from FEMA

After trying to comply, an applicant may ask FEMA to modify the requirement if it believes the required insurance is not reasonably available, an alternative provides adequate protection, or the insurance isn’t necessary to protect against future loss.

How to ask

  1. Try to comply firstDocument your market efforts.
  2. Write to FEMA through the RecipientInclude supporting documentation.
  3. Propose the coverage you can getState the types and extent you believe are reasonably available, adequate and necessary.
  4. FEMA decides with youFEMA works with the applicant and Recipient on whether to modify.

Evidence FEMA looks for

  • Whether coverage exists for the hazard or property type, on what terms, and what similar entities carry.
  • Whether you can get the full amount, and if not, why (for example, it exceeds the property’s value).
  • The likelihood of repeat damage.
  • Hazard mitigation that reduces future risk.
  • Any alternative to insurance, and why it’s adequate.
  • Affordability: premiums, required retained risk, and cost relative to your operating budget.
  • Whether an existing policy can be renewed.
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5 · Policy Part 1(E) · 42 U.S.C. 5154(a)(2)

The State Insurance Commissioner: certify, not waive

The rule in one sentence: the State Insurance Commissioner cannot waive federal insurance requirements, but can certify the types and extent of insurance that are reasonable to protect a facility, and FEMA will not require more than the Commissioner certifies; FEMA uses that certification to modify the requirement.

From FEMA's initial requirement, through the Commissioner's certification, to FEMA's modified requirement 1. FEMA sets theinitial requirementTypes and extent, basedon eligible costs 2. Applicant can’treasonably obtain itMarket search, quotes,declinations 3. CommissionercertifiesTypes and extent that arereasonable, per facility 4. FEMA modifiesthe requirementUses the certified typeand amount Cannot waive thefederal requirement
The requirement never disappears. A certification can lower it to what’s reasonable, and only for the current disaster.
The Commissioner can
  • Certify the types and extent of insurance reasonably available, adequate or necessary.
  • Do so for specific, identified facilities.
  • Support it with market conditions (competition, voluntary vs. residual markets in the state and declared area).
  • Consider reasonable risk management for the applicant’s function, size and budget.
  • Address hazards, property classes, policy limits and premium costs.
The Commissioner cannot
  • Waive federal insurance requirements.
  • Certify that NFIP flood insurance, up to the SFIP maximum, is “not reasonably available” for NFIP-insurable property; FEMA won’t accept it.
  • Carry a certification forward: it applies to the current declared event only. FEMA doesn’t reuse prior certifications.
FEMA’s role
  • Won’t require more than the Commissioner certifies.
  • Uses the certified type and amount to modify the applicant’s requirement.
  • Later reductions use the modified amount (Part 1(H)(3)).
Tribal applicants
  • The Commissioner should consult the Tribal official who regulates insurance in that jurisdiction, if one exists.
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6 · Policy Part 1(F)–(H)

Timing, non-compliance and the next disaster

When to insure (F)
  • FEMA approves aid only on condition that you obtain and maintain insurance.
  • Provide proof of insurance, or a letter of commitment if the facility can’t be insured yet.
  • Then insure when you resume use or legal responsibility, or when the work is complete.
  • FEMA and the Recipient verify proof before closeout.
  • Report later insurance changes in writing through the Recipient.
Non-compliance (G)
  • FEMA will deny or de-obligate assistance in the current disaster.
  • And deny future assistance for that facility.
  • Unreported coverage changes can trigger the same result.
The next disaster (H)
  • Insurance not maintained: the facility is ineligible for that hazard.
  • Maintained: FEMA reduces aid by the prior required amount, regardless of deductibles, coverage method, or coverage of ineligible losses.
  • If modified, the reduction uses the modified amount.
  • If proceeds exceed the prior requirement, FEMA reduces by the proceeds.
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7 · Stafford Act § 312 · Policy Part 2(A)

Duplication of benefits

FEMA cannot fund disaster losses that duplicate benefits from another source, including insurance.

The reduction
  • Before approval, tell FEMA about any actual or anticipated insurance settlement for the property.
  • FEMA reduces aid by actual proceeds; if not yet known, by anticipated proceeds until the actual amount is set.
  • No reduction for retained risk (such as a deductible) when there’s no prior insurance requirement.
  • With a prior requirement, FEMA reduces by the greater of proceeds or the prior required amount.
  • No prior insurance maintained: the facility is ineligible.
Protections for applicants
  • You must make reasonable efforts to recover what you’re owed.
  • Insolvent insurer: if the insurer is legally insolvent because of the disaster, FEMA doesn’t reduce by the unrecoverable amount (other insolvencies are case by case).
  • Legal fees: reasonable fees to recover proceeds are subtracted from proceeds before the reduction.
  • Apportionment: proceeds for ineligible losses (such as business interruption) are split out first.

How FEMA apportions proceeds, in order

  1. By the policy or settlementProceeds per type of loss, as shown in the policy or settlement documents.
  2. By policy limitsLimits for each category of loss in the policy.
  3. By ratioTotal eligible losses compared with total ineligible losses.

With a prior requirement: insolvency, legal fees and apportionment are considered only when your proceeds exceed the prior required amount.

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8 · Stafford Act § 406(d) · Policy Part 2(B)

NFIP reductions in Special Flood Hazard Areas

When the reduction applies

To NFIP-insurable property that meets all three:

  • In an area FEMA has identified as an SFHA for more than one year.
  • Damaged by flooding.
  • Uninsured for flood loss.

How much

  • The lesser of the property’s value at the time of the disaster or the maximum SFIP payout for the building and contents.
If it was insured for flood
  • FEMA reduces by actual or anticipated proceeds.
  • If not insured through an SFIP and proceeds are below what an SFIP would pay, FEMA reduces by the SFIP maximum.

Exception for nonprofits

  • PNPs in communities not in the NFIP aren’t reduced.
  • But the community must join the NFIP within six months of the declaration, or the PNP must obtain and maintain flood insurance from another source.

Think your property isn’t in the SFHA? It’s your responsibility to request a Letter of Map Amendment (LOMA) or Letter of Map Revision (LOMR) within six months of the declaration. FEMA won’t reimburse the cost, and reduces assistance until the letter is obtained.

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9 · Try it

Insurance requirement and reduction calculator

Estimate your § 311 requirement and the reduction FEMA would apply under § 312 or § 406(d), following the policy’s rules. Illustrative only; FEMA’s project determination controls.

One facility, one hazard

Federal and non-federal shares combined.
Not buildings, contents, equipment or vehicles.
Such as business interruption.
For the same facility and hazard; 0 if none.
Used only for the SFHA reduction.
Non-residential: $500k + $500k.
§ 311 requirement$0
Reduction applied$0
Basis—
Net eligible cost$0
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10 · Sources and related pages

Sources

  1. FEMA Recovery Policy FP 206-086-1, Public Assistance Policy on Insurance, June 29, 2015 (Recovery Directorate, Public Assistance Division). Supersedes DAP 9530.1.
  2. Stafford Act §§ 311, 312 and 406(d) (42 U.S.C. 5154, 5155, 5172(d)).
  3. 44 CFR 206.250–253.
  4. FEMA Public Assistance Program and Policy Guide, Version 5.0, insurance sections (current requirements).

Related: Commercial Property Insurance for FEMA PA · Parametric Disaster Risk Financing · Insurance reductions (PAPPG topic)

GovStar is independent and not affiliated with FEMA. This page summarizes FEMA policy for general information; it is not legal advice.

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