See http://www.fema.gov/rrr/pa/overview.shtm .
The Public Assistance Program provides supplemental Federal disaster grant assistance for the repair, replacement, or restoration of disaster-damaged, publicly owned facilities and the facilities of certain Private Non-Profit (PNP) organizations. The Federal share of assistance is not less than 75% of the eligible cost for emergency measures and permanent restoration. The State determines how the non-Federal share (up to 25%) is split with the applicants.
FEMA will reduce otherwise eligible costs by the actual or anticipated insurance recoveries the applicant receives. The State will notify FEMA of any entitlement to insurance settlement or recoveries for a facility and its contents.
For insurable buildings located in a special flood hazard area and damaged by flood, the reduction is the maximum amount of insurance proceeds the applicant would have been received had the building and its contents been fully covered by a standard flood insurance policy under the National Insurance Program.
The applicant is required to buy insurance in the amount of the eligible damages for flood and general hazards.