David Richardson, the acting head of the Federal Emergency Management Agency (FEMA), told staffers two weeks ago he was surprised to learn there is an annual hurricane season. The Trump administration put out a statement saying Richardson was joking, but Reuters quoted staffers as saying he seemed serious. And the Wall Street Journal separately reported that Richardson, who had no experience in disaster management when he was named to the job in May, has been surprised to learn of the breadth of FEMA's responsibilities.
Richardson's confusion comes on top of a whole lot of other confusion at the agency — an announcement promising a new disaster management plan, then an announcement that there will be no new plan this year; disaster recovery grants delayed, then provided, but only on an ad hoc basis; and a whole lot of mutating policy statements about scaling back or even eliminating the agency.
How do we make sense of all that?
I've been waiting and watching to try to understand what's going on and how it might affect insurers that provide coverage for disasters, and I think two things have finally become clear.
One is good for insurers. One is bad for them. Both are bad for homeowners and other policyholders.
Richardson was named acting administrator at FEMA after his predecessor was fired, apparently, for telling Congress FEMA should continue to exist. That suggests strongly that the Trump administration's sometimes conflicting statements do reflect a plan to drastically scale back or even eliminate FEMA and the assistance it provides following natural disasters.
Richardson said back in May that states would have to bear 50% of the cost of disaster recovery, up from the previous 25%. More recently, Trump has said he will mostly wind down FEMA, although not until after hurricane season.
Under the Constitution, only Congress can abolish an agency such as FEMA, and the executive branch is required by law to spend the funds that Congress allocates, but the Republican-controlled Congress has shown no inclination to push back against Trump's assertions of authority. Even if Congress suddenly reclaimed its authority, Trump has considerable executive power to deny or at least delay grants to states and to fire FEMA officials who stand in his way.
So he is making the federal government an unreliable backstop for people and communities facing calamities. That uncertainty will hang over FEMA even if Democrats retake control of one or both houses of Congress in the mid-term elections or if the next president takes a more traditional view of FEMA's role in disaster recovery.
The step backward by the federal government will hurt property holders — and my heart is always with those suffering from natural disasters — but will, in fact, help insurers. Property holders now carry more risk than they did pre-Trump, and they're going to want to lay off some — maybe even a lot — of that risk with insurers.
Even state governments, strapped for funds, may turn to private insurers for help with the risk the federal government is handing to them. (The Trump administration line is that states are being "empowered" to do more about disaster recovery, but states don't seem to see things quite the same way.)
The second thing that has become clear about Trump's FEMA is rough both for policyholders and for insurers. It is that Trump has little or no interest in a program called Building Resilient Infrastructure and Communities.
The program has long been used to help areas hit by disasters make themselves less vulnerable to future catastrophes, and it meshes — or meshed — with the Predict & Prevent movement in the insurance industry.
Groups such as the Insurance Institute for Business & Home Safety have been promoting standards such as Fortified roofs, and insurers have been working with communities to help prepare them for wildfires, hurricanes and other natural disasters. The expectation has been that the federal government would at least be some sort of partner, providing expertise and a fair amount of funding. Not any more.
Here's hoping this year is kinder than recent ones in terms of hurricanes, tornados, severe convective storms and wildfires, but I'm not counting on any relief. And even FEMA says it is "not ready."
Cheers,
Paul