Insurers, eager to grasp at any straw that might pull them out of the harsh glare of regulatory, legislative and media scrutiny over their handling of Hurricane Katrina claims, were relieved that a Department of Homeland Security report uncovered no evidence private carriers had improperly shifted wind-damage claims to the federal flood insurance program. Unfortunately–for both the industry and Congress–the report is virtually worthless.
The report by DHS Inspector General Richard Skinner–marked “interim”–makes painfully clear that the Feds have no clue whether claims with both wind- and water-related elements were settled fairly, or whether anyone will ever know for sure.
That means Congress will be flying blind when they attempt to reform the National Flood Insurance Program this fall. A final DHS report will be issued early next year, but by then it might be too late to make a difference.
In any case, the way DHS made it sound, even if the department had another decade to complete its survey, it might never come to a final verdict on whether insurers were dumping claims onto Uncle Sam.
Indeed, the report complained, oversight by the Federal Emergency Management Agency, a unit of DHS, is limited.
As reported by NU Washington Editor Dave Postal, the report said that FEMA did not maintain documentation indicating the total damage to a structure and how much was attributable to flood and wind, nor is it required by the NFIP. The result, according to the report, was that NFIP oversight focused primarily on whether the flood claim was correctly adjudicated, with little or no consideration for wind damage as a contributing factor.
Under the current process, it is difficult to determine whether the NFIP paid a higher percentage or the entire damaging claim involving both perils, the report added.
The bottom line (for now, at least) is that although nothing came to our attention during our limited review to indicate [private carriers] attributed wind damage to flooding, we cannot rule out the possibility that it occurred, the report concluded.
So now what? This is far from an academic debate, since Congress is considering adding a wind-damage option to the flood program.
Some in the industry chose to read the report with rose-colored glasses, but the only clear-eyed view I've heard expressed came from Pat Borowski, senior vice president at the National Association of Professional Agents, who said the report's results can best be summed up as: On the one hand this, on the other hand that, and in the final analysis, it depends.
The report's findings are, at best, inconclusive and possibly even contradictory, she added, causing PIA to question its value.
“We believe that it is best to place this interim report on a shelf, not act on it, and wait until a final report is completed, she concluded. Words of wisdom for sure.
From our perspective, the focus of DHS should be on the accuracy of their declarations of the status of flood and the NFIPs actions to trigger flood coverage under federal flood insurance policiesboth actions which we support. Anything else is a matter for state courts, she said.
Certainly, this half-baked report won't deter the industry's critics in Congress from coming at insurers with full force.
As Mr. Postal reported, Brian Martin, an aide to Rep. Gene Taylor, D-Miss.–who has been critical of insurer claim-handling following Katrina, and who sued his homeowners insurer over his own Katrina claim–said that from press reports, we know that insurers shifted liabilities to NFIP. The evidence is there in dozens of cases that have been reported
And if insurers did indeed claim the benefit of the doubt in their favor and dump the burden of proof to policyholders for wind damage, then they could have shifted billions of dollars onto taxpayers and policyholders, he added.
The executive branch of this federal government comes up lame again. Their agencies are often incompetent, rarely accountable and totally unreliable (as well as uncooperative) when it comes to supplying information to the public on how they did their jobs. Flood insurance is no exception.
Insurers are in for a long, brutal battle with Congress over flood coverage, and perhaps wind as well. How do you folks think this will all play out?
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