Actuarially-based flood insurance rates scheduled to be phasedin starting next year are unaffordable to Louisiana's coastalresidents, and could have a devastating impact on the state'seconomy, the state's insurance commissioner says.

Jim Donelon made his comments to PC360 as he prepared for acritical meeting Thursday with Federal Emergency Management Agency(FEMA) Associate Administrator David Miller, who oversees theNational Flood Insurance Program.

Miller is also scheduled to meet Friday with officials inMississippi because of the impact of the rate increases on thestate's coastal areas.

In his comments to PC360 this week and in appearances in BatonRouge, La. and Washington last week, Donelon said that the rateincreases, scheduled to be phased in starting in 2014, are so bigthey could hurt the state's economy.

“The increases will have a devastating impact effectiveimmediately,” Donelon said. “Homeowners have to have floodinsurance to protect their investment, even if they have nomortgage. These rate increases will render thousands of propertiesworthless because insurance rates will be going up so dramaticallyand suddenly.”

He said the increases would make it almost impossible for ownersto sell thousands of properties outside the New Orleans region'sfederal levee system because the entire rate increase would go intoeffect immediately if a property is sold.

Billy Ward, president of the Louisiana Home BuildersAssociation, has told local publications that some property ownerscould see rate increases of 4,000 percent.

Donelon was in Washington last week to answer questions posed bythe Government Accountability Office. The GAO is mandated by the2012 law that reauthorized the NFIP for five years to conduct astudy on the feasibility of privatizing the program.

Donelon said he told the GAO that the “The NFIP is moreimportant for Louisiana than any other state.”

But, he said, by rendering thousands of coastal propertiesworthless because, overnight, their owners will not able to affordflood insurance coverage, he believes the program should bescrapped.

A more appropriate alternative is for the government to create acatastrophe, flood and earthquake reinsurance program as a backupto the current homeowners insurance program, he said.

Congress, however, has repeatedly rejected such proposals. Forexample, legislation creating such a program, the HomeownersDefense Act, was introduced every year for four years by a PalmBeach, Fla., Democrat who was defeated in the 2010 waveelection.

Sen. Bill Nelson, D-Fla., recently reintroduced the legislation.It is colloquially denigrated by conservative economists as the“Beach House bailout” law.

But Donelon defended such an approach. “It would provide abackstop for traditional coverage as existed decades ago, beforecreation of the NFIP, and allow an expansion of homeowners' andcommercial insurance,” Donelon said.

“That is what should be done long-term,” Donelon added. “But Iam open to other suggestions as well because this is definitely athreat to our state's economy.”

Donelon said that primary residences and commercial propertyalong Louisiana's coast are of the biggest concern.

“We have few second homes; very little beachfront properties,”Donelon said. “The properties impacted by this are the primaryresidences of our 'working coast,' — those of fisherman, oilfieldworkers, onshore and offshore, dock workers, etc. and theircommercial businesses,” Donelon said. He said these includedgrocery stores, fire stations, schools, and the teachers and policewho serve the coastal areas.

Sen. Mary Landrieu, D-La., has introduced legislation that woulddelay the onset of the new rates for some properties for oneyear.

Legislation containing such a provision has been reported out bythe Senate Appropriations Committee. However, given the gridlock inCongress, it is unlikely to be enacted. Moreover, critical membersof both the House and Senate have indicated that they would opposeany changes to the 2012 law, the Biggert-Waters Act.