The administrator of the Gulf oil spill disaster relief fund is warning the government that, while the fund has worked effectively, it should not serve as a template for future disasters. Because these funds single out a specific group of people and often provide them with enormous amounts of compensation, he fears that other deserving individuals will be left out.

Payout Funds Not the Way to Go

Payout or disaster relief funds are often used as a way to compensate individuals with or without home insurance who need to make necessary repairs to their homes or need cash for other issues that arise as a result of the disaster.

While this type of relief aid is relatively rare, the Gulf Coast Oil Spill Relief Fund was created to provide assistance to those affected by last years oil spill.

Fund administrator, Ken Feinberg, has recently announced that the payouts are flowing efficiently, but noted that the structure for compensating victims should not be repeated because it only helps a small segment of the population and often cant meet the victims needs in a timely fashion.

He went on to say that while Gulf victims received help, Hurricane Katrina victims in 2005 didnt receive a fundand neither did Oklahoma City bombing victims in 1995. The inherent danger, he said, in providing the funds like the one given to the oil spill victims is that everyone will begin to expect funds and the government may not be prepared to meet their wishes.

Disaster Relief vs. Insurance Coverage

The concept of providing disaster relief to homeowners isnt entirely new. In 1957, the Price-Anderson Act required nuclear plants to start making payments to a fund that would provide relief to communities in the event of a nuclear disaster.

However, this fund is different than the relief fund Feinberg warns against. Serving as a form of nuclear insurance that residents dont contribute to, the fund is ongoing and hasnt been set up last-minute to accommodate a specific, unexpected incident.

The question of whether disaster relief funds similar to the Gulfs should be set up and distributed to residents makes one wonder what home insurance covers. In this case, companies said they were willing to pay for damage if hurricane winds tossed oil onto homes; however, most did not have to.

The concept of a disaster fund seems to be a good one, though it comes with issues that may not be worth the trouble, as noted by Feinberg. With the challenge of having to accommodate 850,000 oil spill claims and regularly hearing complaints from residents that the process is too slow, he thinks it may be time to find a new way to address such issues.

He didnt suggest a solution, but one might think that incorporating these types of disasters into insurance coverage could work as an option. But well just have to wait what proposals, if any, could arise from lawmakers after hearing his warning.

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