The "F" word hits the road – finds Wall is dead end Street (Part 2 of 3)

Wind sucks, wind damage to your house sucks, having coverage denied because someone can’t figure out how much damage wind did to your house sucks, having one policy for wind damage and another for flooding sucks – but what really sucks is the “F” word doesn’t know a suckin, f’n thing about wind damage from a hurricane and if you don’t believe that, read the report. JMHO

Final statistically unreliable report- Hurricane Katrina: Wind Versus Flood Issues.

When Congress passed the Department of Homeland Security Appropriations Act 2007, language was added requiring the OIG to investigate whether and to what extent insurance companies participating in the NFIP improperly attributed damages from Hurricane Katrina to flooding rather than to windstorms covered under homeowner policies or wind insurance pools.

There were 209,404 NFIP flood insurance claims filed for Hurricane Katrina, according to the table on page 6 of the OIG report.

• 98-100 paid claims were reviewed prior to the interim report released July 2007.

• The number of paid claims reviewed increased to 131 – .0062% of total claims -in the final report.

• 123 of the 131 paid claims also received payment for wind damage – 94% of those reviewed

Sop, who actually conducts investigative GAAS audits and prior to specializing in construction performed Single audits for certain state governemntal entities, is going to follow with our collective opinion on the disconnect we found between reported data and the OIG’s findings (Results of Review, page 5) – hopefully explaining how data show 1.5 % of the NFIP claims paid for wind damage while the related finding states, Based on the files in our sample, NFIP did not pay for wind damage…duh!

However, because the sampling technique selected by the OIG is indicative of the larger problem created by the “F” word following Hurricane Katina, it is important to point out the 131 paid claims were a Judgmental Sample.

Sampling is the use of a subset of the population to represent the whole population. Probability sampling, or random sampling, is a sampling technique in which the probability of getting any particular sample may be calculated. Nonprobability sampling does not meet this criterion and should be used with caution. Nonprobability sampling techniques cannot be used to infer from the sample to the general population. Any generalizations obtained from a nonprobability sample must be filtered through one’s knowledge of the topic being studied. Performing nonprobability sampling is considerably less expensive than doing probability sampling, but the results are of limited value. (emphasis added)

Examples of nonprobability sampling include: Judgmental sampling or purposive sampling – The researcher chooses the sample based on who they think would be appropriate for the study. This is used primarily when there is a limited number of people that have expertise in the area being researched.

The irony of using the Judgmental Sampling Technique is not lost when the research is an investigation of what could be called poor judgment at best and is more likely fraud – the allocation of wind damage to the NFIP.  Poor judgement because of the lack of needed expertise is also the larger problem with both the OIG’s report and the “F” word’s management of the NFIP.

The report provides more than adequate documentation to back up my claim.

There is little evidence in flood claims to determine whether payouts were fair and equitable for damages caused by wind and water affecting the same structure.

What little evidence of wind damage there is in a NFIP claim file, is there by accident.  There is no requirement for the WYO company handling NFIP claims to document the allocation of damages when wind and water affect the same structure.

In other words, a scheme to inappropriately shift cost from wind damage to the NFIP could easily go undetected if no whistleblowers came forward because the “F” word as an agency is so lacking in the needed expertise. Congressman Taylor’s recent statement about the report, posted here on SLABBED, adds context:

“No other federal program allows private companies that have a conflict of interest to hand out checks from the federal government for up to $350,000 with almost no accountability.”

Although the OIG’ report refers to the conflict of interest mentioned by Congressman Taylor as allegations (page 12), it also references and concurs with a December 2007 GAO report that concluded

an inherent conflict of interest exists when a single WYO insurance company is responsible for adjusting both the wind and flood claim on a single property…

My reading of OIG’s report, however, suggests a much deeper conflict – the “F” word relies on the insurance industry to provided the needed expertise for program policies and practices AKA the inmates are running the asylum.

A case in point is the Expedited Claims Handling Process that should have also expedited David Maurstad’s departure if the process was intended to serve the public’s interest.

According to NFIP officials, claims experts from several WYO companies assisted in developing those procedures. (emphasis added) The procedures were designed to identify the characteristic of flood claims that would lend those losses to expedited handling and those characteristics were:

Structures that have or have had standing water in them for an extended period of time.

The structure has been washed off its foundation.

In other words, 22 days after Katrina, with the insurance industry at his side, David Maurstad expedited the process for handing the claims for structures that were a total loss and, therefore, most costly to the industry.  Appendix D to the OIG report includes Maurstad’s related memorandum but not the attachment providing details – for those, I had to rely on google.

IMO, the conspiracy/scheme described in the Rigsby sister’s qui tam claim likely began with the insurance industry designing an expedited claims process as “cover” and then “assisting” Maurstad in “developing” the process as a response to the large number of NFIP claims – creating a square peg from the independent flood model that could only fill the round hole of Katrina flood damage with corners cut.

The footprints of the insurance industry’s influence are evident throughout the report – from the methodology of the sample selection process (Appendices of the Interim Report) to the Results of the Review (Final Report) – made possible by a government that continues to insist it is possible to cover flood damage from a hurricane without recognizing and also covering the underlying damage from the wind.

Were it not for the Rigsby sisters and Branch Adjusters, attributing wind damage to NFIP could have gone unnoticed – an almost perfect crime cloaked in such heavy NFIP cover that it made Katrina the world’s eighth wonder, a windless hurricane, for a time.

For the answer to why, we follow the “F” word to Wall Street in Part 3 – the place where the money to pay for wind damage was hedged and swapped until the street finally came to a dead end.