Disaster Assistance

Issues Related to the Development of FEMA's Insurance Requirements Gao ID: GGD/OGC-00-62 February 25, 2000

The Federal Emergency Management Agency (FEMA) has proposed that funding under the Public Assistance Program for buildings damaged in a disaster be limited to those state and local agencies and other public entities that maintain specified minimum levels of insurance coverage. The draft regulation is intended to remove a disincentive under current rules for such entities to both carry insurance and manage their risk of disasters, according to FEMA. FEMA's draft regulation could have significant financial implications for states, municipalities, and private nonprofit hospitals and universities. This report evaluates FEMA's efforts to develop its draft insurance regulations. GAO (1) determines the extent to which FEMA obtained and incorporated input for state and local agencies and public entities likely to be affected by the draft regulation; (2) evaluates FEMA's compliance with Executive Order 12866, the Regulatory Flexibility Act, and applicable guidance governing the rulemaking process; and (3) assesses FEMA's internal rulemaking processes and procedures.

GAO noted that: (1) during the process of drafting its insurance regulations, FEMA took a number of steps to obtain and incorporate input on the content of its draft regulation from representatives of state and local government entities; (2) from January through October 1999, FEMA met with various groups, including public risk managers, emergency management service agencies, state insurance commissioners, and insurance companies and organizations; (3) based on input received from these meetings, FEMA appeared to have made a number of changes to its draft regulation; (4) as required by Executive Order 12866 for significant regulatory actions, FEMA submitted its draft notice of proposed rulemaking to the Office of Management and Budget (OMB) on July 2, 1999, for its review and clearance; (5) however, FEMA had not addressed two of three key requirements contained in the executive order and related OMB guidance for economically significant regulatory actions; (6) specifically, FEMA had not performed an analysis of the expected costs and benefits of the draft regulation, and had not prepared a comprehensive analysis of other alternatives; (7) in response to GAO's preliminary discussions with FEMA about these issues, FEMA entered into a contract with a management consulting firm to conduct a cost-benefit analysis and to examine and assess alternative approaches; (8) in addition, FEMA began additional analysis of the impact of its draft regulation on small entities, such as local government agencies and nonprofit organizations, in response to OMB's concerns about FEMA's compliance with the Regulatory Flexibility Act; (9) FEMA decided in January 2000 to issue an advance notice of proposed rulemaking before issuing a notice of proposed rulemaking, which will provide affected parties an additional opportunity to provide input and provide additional time for FEMA to complete the various required analyses; (10) many of the problems GAO observed with the processes FEMA followed in developing the draft regulation appeared to be the result of weaknesses in FEMA's internal rulemaking processes and procedures; and (11) FEMA's internal guidance and procedures governing the formulation of proposed rulemaking have not been updated in more than 10 years.


Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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