There has always been an inherent conflict of interest in private insurance companies settling claims for the National Flood Insurance Program. It has also been difficult to define fair compensation for privately provided services for the NFIP in a manner that is consistent with the federal government's duty to make sure costs are minimized for the benefit of taxpayers who subsidize the program.

Because of serious problems with both claims and fees, private insurers were removed from the NFIP in the 1970s. (See sidebar for a brief history of these issues.)

Awareness of these earlier problems is important because it shows the issues plaguing the NFIP today are endemic and long-lasting–not unique to the aftermath of Hurricane Katrina.