Hat tip to both a reader and Editilla over at the Ladder. While we understand why a reporter has to hang his hat on that fatally flawed OIG report on claims dumping I am certain it will not be the last word on the subject, far from it in fact. After reading this article my mind is open to the possibility it may be better to disband FEMA and start anew with an agency that is not so keen on flushing massive amounts of taxpayer money down the toilet. Now for Sean Reilly’s article which appeared in yesterday’s Press Register:
When lawmakers ponder the woes of the federal flood insurance program, they tend to dwell on the billions of dollars in red ink spilled since 2005, when Hurricane Katrina left a backwash of huge losses.
Less attention has been given to the program’s dependence on private insurance companies and agents to do most of the actual work of selling policies and adjusting claims.
As the Press-Register has reported, those companies — which include industry heavyweights such as State Farm and Nationwide — and agents were paid more than $750 million for their services in fiscal 2008, almost a quarter of total premium payments.
This amounts to a sweetheart deal, according to some critics. Their position was boosted last fall by a congressional finding that a half-dozen insurers had received more than $300 million in flood-insurance program overpayments during three years. In one case, a company earned a marketing bonus despite having done no marketing.
“There’s just almost no oversight, really,” said Brian Martin, policy director for Mississippi Rep. Gene Taylor, D-Bay St. Louis, who has frequently called into question the insurance companies’ role in the federal program.
At the Federal Emergency Management Agency, which is responsible for the program, top officials have defended the industry alliance as central to expanding participation to some 5.6 million policies nationwide, including more than 55,000 in Alabama and 75,000 in Mississippi.
“This partnership allows us to reach as many communities as possible in a timely and a cost-effective manner,” FEMA spokesman Clark Stevens said in an e-mail.
The question is would these ingrates at FEMA act in such a way if their own money was being flushed down the toilet with nothing in return? Predictably the paid shills at the American Insurance Association says forget about the waste in an incredibly disingenuous statement as we continue:
At the American Insurance Association, a Washington, D.C.-based industry group, Associate General Counsel Eric Goldberg said that the number of participating companies has been on the decline. If flood insurance were “such a gravy train,” he said, there would presumably be more carriers.
Of course as Sean Reilly points out the program already has 90 companies which accounts not only for 97% of the existing flood market they also represent somewhere close to 80%plus of the total homeowners insurance market nationwide so it would be hard to attract more private sector involvement beyond that already represented in the program as we continue:
Formally known as the Write Your Own program, the alliance dates back to the early 1980s. About 90 companies are involved, and, as of fiscal 2008, they handled 97 percent of FEMA’s flood policies.
While participation by property owners in flood insurance stand is around an all-time high, the program’s financial condition has never been worse. It is now $19.3 billion in debt to the federal treasury, largely because of Katrina claims.
Lawmakers have been able to agree only on a series of stop-gap extensions to keep the program afloat. The latest will last until the end of next month.
In the congressional review, released in September, the Government Accountability Office found that FEMA had overpaid six insurers by $327 million from 2005 to 2007 and was unable to judge companies’ performance in selling new flood policies. The GAO is a congressional watchdog agency.
“Given the significant risk exposure to the federal government, it is imperative that FEMA carry out its stewardship responsibilities,” the authors wrote.
In a companion piece we find out that while FEMA is quick to issue press releases promising to do better, it remains incest as usual up in DC:
In response to criticism, the Federal Emergency Management Agency is pursuing steps that could limit what private insurers take out of the government-backed flood insurance program.
But while some advocates say that FEMA should require competitive bidding to further drive down costs, the agency is reluctant to go that far.
As it now works, insurance companies can sell flood policies and act as adjusters if they meet government guidelines and will accept what FEMA pays under a set fee structure.
Under a different approach outlined in a congressional report last fall, FEMA could instead use competitive bids to select a smaller number of firms — possibly only one — to handle that work under contract.
The report by the Government Accountability Office, a congressional watchdog agency, also suggests FEMA use insurers’ actual expenses in deciding how much to pay them, instead of relying on a formula.
The status quo “is way too expensive,” said Bob Hunter, insurance director for the Consumer Federation of America, a Washington, D.C.-based advocacy group.
Predictably insurers mightily resist such a move because it would subject them to accountability for their actions. The next blurb more than any other illustrates whom is really running the National Flood Insurance Program and in the process explains the why behind the looting of the program by its vendors.
But the GAO reported that most insurance officials contacted don’t want to become federal contractors because that would bring added regulation. Also, going with just one firm might be less expensive, but would “almost completely eliminate” the network of agents used to sell policies, the GAO said.
And of course before anything is done with the NFIP the related problems of claims dumping and lack of private market coastal wind insurance also must be addressed.