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 the National Underwriter as heprepared for a critical meeting Thursday with Federal EmergencyManagement Agency Associate Administrator David Miller, whooversees the National Flood Insurance Program.

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

In his comments to the National Underwriter this week and inappearances in Baton Rouge and Washington last week Donelon saidthe rate increases are so big they could hurt the state'seconomy.

The rate increases are scheduled to be phased in starting in2014.

“The increases will have a devastating impact effectiveimmediately,” Donelon said.

“Homeowners have to have flood insurance to protect theirinvestment, even if they have no mortgage,” Donelon said.

“These rate increases will render thousands of propertiesworthless because insurance rates will be going up so dramaticallyand suddenly,” he said.

It would do so by making it almost impossible for owners to sellthousands of properties outside the New Orleans region's federallevee system because the entire rate increase would go into effectimmediately if a property is sold, Donelon said.

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

Donelon was in Washington last week to answer questions posed bythe Government Accountability Office. The GAO is mandated by the2012 law that changed the NFIP rate structure to conduct a study asto 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.

Next Page: 'More Appropriate Alternative”

A more acceptable alternative may be for the government tocreate a catastrophe, flood and earthquake reinsurance program as abackup to the current homeowners' insurance program.

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 defeated in the 2010 election.

Sen. Bill Nelson, D-Fla., recently reintroduced suchlegislation. Conservative economists have dubbed it the “BeachHouse 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 said. “But I amopen to other suggestion as well because this is definitely athreat to our state's economy.”

Donelon said that primary residences and commercial propertyalong Louisiana's “working coast” are the primary areas ofconcern.

“We have little second homes, very little beachfrontproperties,” Donelon said. The properties impacted by this are theprimary residences of our 'working coast,' those offisherman, oilfield workers, onshore and offshore, dock workers,etc., and their commercial businesses,” Donelon said. He said theseincluded grocery stores, fire stations, schools, and the teachersand police who 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 in the law, the Biggert-Waters Act.

However, FEMA is seen as being given some flexibility to delaythe onset of the rates by either legislation or by regulatoryaction by the Obama administration.

That is why the Miller trip to the state is seen by Louisianaand Mississippi as crucial.

As Landrieu stated in announcing that Miller would visitThursday, Landrieu said, “Miller's trip is critical for FEMA tounderstand how these rate increases could dramatically burdenhomeowners and small business owners in Louisiana and throughoutthe country.”

She added, “We must find a long-term solution to making floodinsurance affordable, accessible and self-sustaining.”