Category: GAO

Dean Starkman – SunHerald

Dean Starkman’s very fine writing about the insurance industry’s response to Hurricane Katrina, Insurance Transparency Project blog, continues to be an invaluable resource for SLABBED.  In fact, it was my search for something he’d written that led me to the Columbia Journalism Review where I found (much to my delight)  SunHerald’s Lee, Times-Pic’s Mowbray: Still on it

One of the true pleasures of reporting on the insurance industry’s response, or non-response, to Hurricane Katrina was meeting, and reading the reporting of, the principal Gulf-area papers’ reporters on the insurance angle, Rebecca Mowbray of the Times-Picayune and Anita Lee of the SunHerald of Gulfport and Biloxi, Miss.

It is heartwarming to see them still on the case, four years later. It is heartbreaking to read what they are reporting.

Mowbray: “Report dubs FEMA poor watchdog”

That one, from September 22, is about how the government fails to supervise the private insurers who administer the federal flood program under a “private-public partnership” (always a good idea to check your wallet when you read those words):

FireShot capture #104 - 'SunHerald's Lee, Times-Pic's Mowbray_ Still on it _ CJR' - www_cjr_org_the_audit_sunheralds_lee_timespics_mowbr_php

That’s for expenses, people. Insurers under this program bear no risk. What financial product comes with a 66% load? Continue reading “Dean Starkman – SunHerald”

The GAO does some more cussin’ and discussin’ on the National Flood Insurance Program

When I began blogging to what would become Slabbed my knowledge of complex finance was exceeded only by my ignorance of how the political process really worked.  What I found from my perch here in Soggy Bottom is that talking aka cussin’ and discussin’ dominates the process. And besides all the talking that goes on inside the beltway there is a mirror conversation that happens on the outside, in places like Yahoo Allstate finance message board and in Sheila Brinbaum speeches where alternate realities are peddled out of economic self interest.

Beyond the shilling however the Government Accountability Office has been looking at the NFIP and their findings tell the real story, of a program abused by private for profit insurers with no oversight on part of FEMA. For instance in September 2007 the GAO found:

FEMA’s payments to WYO insurance companies for operating costs ranged from more than a third to almost two-thirds of the total premiums paid by policyholders to the NFIP for fiscal years 2004 through 2006……

The approach FEMA uses to determine operating costs for WYO insurance companies, rooted in policies negotiated and established about 25 years ago, cannot ensure that payments are based on reasonable estimates of actual expenses because actual expenses incurred by the companies for their services to the NFIP are not considered. Although it has authority to do so, FEMA does not collect data on actual WYO flood insurance expenses that could provide a basis for insuring that the WYO payments are based on a reasonable estimate of actual expenses.

Fast forward to December 2007 and another GAO report which found FEMA asleep at the switch and a program structures to create “an inherent conflict of interest”:

Insurance coverage gaps and claims uncertainties can arise when coverage for hurricane damage is divided among multiple insurance policies. Coverage for hurricanes generally requires more than one policy because private homeowners policies generally exclude flood damage. But the extent of coverage under each policy depends on the cause of the damages, as determined through the claims adjustment process and the policy terms that cover a particular type of damage. This process is further complicated when the damaged property is subjected to a combination of high winds and flooding and evidence at the damage scene is limited. Other claims concerns can arise on such properties when the same insurer serves as both NFIP’s write-your-own (WYO) insurer and the property-casualty (wind) insurer. In such cases, the same company is responsible for determining damages and losses to itself and to NFIP, creating an inherent conflict of interest.

And the GAO continued looking at the program most recently with the issuance of this report dated last month. The professionals at GAO continue to find a program operated with little oversight and no internal controls: Continue reading “The GAO does some more cussin’ and discussin’ on the National Flood Insurance Program”

Speaking of lobbying – NFIP pays insurance company legal fees in flood claims disputes!

We are pleased to transmit to you the Federal Insurance Administration’s (“FIA”) new Guide for Write Your Own Counsel. This Guide provides important information on the policies and procedures to be followed by Write Your Own Companies (“WYO Companies”) and their counsel in litigation involving the National Flood Insurance Program (“NFIP”)…

Since the inception of the WYO Program in October 1983, defense of lawsuits based on the SFIP has generally been handled smoothly and effectively. We stand ready to continue to offer support to WYO Companies in all litigation matters concerning the NFIP in our ongoing spirit of partnership.

Can you believe it? I can not – but google search results for “NFIP litigation” offered a copy.

This Guide for Write Your Own Counsel (“Guide”) has been developed by the Federal Insurance Administration (“FIA”) and the Federal Emergency Management Agency (“FEMA”) Office of General Counsel (“OGC”) to assist Write Your Own (“WYO”) Companies and their counsel defending National Flood Insurance Program (“NFIP”) litigation.

So much for thinking it is the deep pockets of the insurance industry that put most NFIP policyholder-plaintiffs at a financial disadvantage in litigation – those deep pockets are in Uncle Sam’s pants!

The FIA and WYO Company share a unique and common interest in the defense of cases related to the NFIP. Among other factors that give rise to this shared interest are the fiduciary responsibilities of the Company, the statutory and regulatory basis for the NFIP, the Federal government’s administrative and oversight responsibilities for the program, the need to share privileged information, and the fact that Federal funds are at risk. Accordingly, through the Arrangement, the FIA and the WYO Company have entered into a joint defense agreement to implement FEMA’s oversight responsibilities for the purpose of any litigation related to or arising under the NFIP to enable the free flow of information between the FIA, FEMA OGC, the WYO Company, and its legal counsel.

“Unique” is not exactly what I’d call the the government’s “common interest” with the insurer defendants in Katrina litigation.  I wonder if Judge Senter had a better word in mind in the “opinion” he would not “venture” in his December 12, 2008 Order in Gagne v State Farm. Continue reading “Speaking of lobbying – NFIP pays insurance company legal fees in flood claims disputes!”

An “Indexed” Look at the Scheme – The Power Game

I was inspired to put a slightly different spin on Nowdy’s excellent the Scheme Chapter 5 post using the “indexed method”.  Like I said yesterday a picture is worth a thousand words and a chart certainly qualifies so I borrowed one from Nowdy’s post to make the general point.

Dedicated to Coastal Cowboy with a large H/T to the original indexer and one of my favorite bloggers, Jessica at Indexed. – sop

indexed

Reinsurance lobby credited with defeat of Wicker’s amendment

Senator Wicker’s attempted amendment adding wind coverage to the National Flood Insurance Program failed on a 73-19 vote. Sop reported the vote here using the McClatchey story from the Sun Herald. The Associated Press carried a slightly different versions of the story.

Sen. Roger Wicker, R-Miss., who has pushed the measure in the Senate, noted that a review by the Congressional Budget Office estimated that the proposal would create no “significant budgetary impact.”

“By covering wind and flood risks in one policy, the multiple peril option will allow coastal homeowners to buy insurance and know that hurricane damage would be covered,” Wicker said. He called it a “commonsense proposal” that would prevent homeowners from having to go to court to determine whether a house was damaged by flood or wind.

Unfortunately, commonsense was in short supply when the vote was taken. “It’s not that we disagree, it’s a legitimate issue,” Dodd said. “But this amendment could end up costing us billions more than we anticipate. We don’t have any idea.”

Rebecca Morbray provided background in GAO report criticizes plan to add wind coverage to National Flood Program. Continue reading “Reinsurance lobby credited with defeat of Wicker’s amendment”

GAO National Flood Insurance Program Report: A View from Outside the Industry

Yesterday we pointed out several glaring omissions and factual inaccuracies in the Reuters drive by reporting on the General Accounting Office NFIP report. Today we see better coverage courtesy of Anita Lee at the Sun Herald. In addition to our analysis, Ms Lee points out some of the other conclusions reached by the GAO on the flaws inherent to the current program design:

The first flaw involves the three wise monkeys and the concept of see no evil, hear no evil and speak no evil. While that old proverb works well in our personal conduct it is an invitation to disaster when used to manage a federal program:

The flood-insurance program cannot accurately determine flood-claim payments on properties that were subject to both winds and flooding, because FEMA does not collect information on wind claims and does not require companies to explain how they distinguish between wind and flood losses.

The second flaw involves the security the program gives to it’s participants, even if property owner contracts for wind and flood insurance there is no way to know if all the damage will be covered due to Catch-22 like scams such as the anti concurrent clause built into wind policies and other coverage differences between flood and wind policies:

Property owners with separate homeowner, wind and flood insurance policies cannot know prior to a storm whether all their damage from a hurricane will be covered because of differences in the policy limits. The NFIP cedes the damage determination to the insurance company.

The system as currently designed fosters legal disputes because of Catch-22 scams such as the Anti Concurrent clause.

Legal disputes between wind and flood coverage have increased because of insurance companies’ anti-concurrent causation clauses that attempt to exclude coverage of wind damage if flooding contributed to the loss.

Most interesting is that FEMA seems to oppose the common sense recommendations, especially those that would require the bureaucratic FEMA monkeys to remove their blinders and examine how flood claims are adjusted and the damage is apportioned in multi peril events such as hurricanes by private insurers.

Given the insurance money that supports Senate politicians like “Renfroe” Richard Shelby and “Pac-Man” Christopher Dodd we certainly understand their insistence to sticking with the current “heads I win, tails you lose” setup for coastal residents whereby wind policies are essentially meaningless pieces of paper and taxpayers ultimately bear the burden for multi peril events like Hurricanes. However, from the appearance of Gene Taylor’s remarks quoted in the Sun Herald, the Catch-22 days of ordinary citizens unable to rely on their wind policies while insurance companies laugh all the way to the bank appear numbered. Thanks to the internet the truth will win this debate. Today’s Sun Herald story:

GAO points up conflict of interest

Insurers deciding in wind vs. water

By MARIA RECIO
SUN HERALD WASHINGTON BUREAU

The Government Accountability Office issued a report Wednesday on the National Flood Insurance Program that concluded insurers have “an inherent conflict of interest” in determining flood damage the federal program must pay, with the wind damage covered by private companies.

“I applaud the GAO for confirming that insurance companies have an inherent conflict of interest when they are allowed to determine whether to assign damages to their own wind-insurance policies or to the federal flood-insurance policy claims,” said Rep. Gene Taylor, D-Bay St. Louis, who lost his home in Hurricane Katrina.

The GAO concluded the program needs greater transparency and oversight of wind- and flood-damage decisions. The agency is the congressional watchdog arm and frequently investigates at the request of members.

“The report reinforces my proposal,” said Taylor, “to give homeowners the option to buy wind and flood coverage in the same policy.” The House passed Taylor’s provision in September but the bill is stalled in the Senate.

“I urge the Senate to pass this legislation in order to stabilize the insurance market in coastal states,” Taylor said. “I strongly support GAO’s recommendations that insurance companies be required to turn over their wind-claims files so that FEMA can verify that the companies applied the same standards to the flood insurance claims as to their own wind claims.”

According to the GAO, FEMA opposes the recommendation, which prompted Taylor to say, “I am disappointed, but not surprised, that FEMA opposes that recommendation. FEMA needs to recognize that its oversight responsibility is to protect federal taxpayers, not insurance companies.”

The GAO also concluded:

• The flood-insurance program cannot accurately determine flood-claim payments on properties that were subject to both winds and flooding, because FEMA does not collect information on wind claims and does not require companies to explain how they distinguish between wind and flood losses.

• Property owners with separate homeowner, wind and flood insurance policies cannot know prior to a storm whether all their damage from a hurricane will be covered because of differences in the policy limits. The NFIP cedes the damage determination to the insurance company.

• Legal disputes between wind and flood coverage have increased because of insurance companies’ anti-concurrent causation clauses that attempt to exclude coverage of wind damage if flooding contributed to the loss

Pee on My Leg and Say It’s Raining Part 2: Reuters Story Contains Glaring Omissions and Falsehoods

After I read yesterday’s Reuters story on the fight to reform the flood program I thought it strange it contained this paragraph which I knew to be inaccurate:

The Senate bill would extend the NFIP for five years and improve flood maps used in the program. But a vote by the full Senate on the bill has been blocked by lawmakers from Louisiana who are concerned that it would boost insurance rates there.

Fast forward to today and this Reuters story which contains almost the exact same wording for the reason for the hold on the senate version of NFIP re authorization:

The NFIP’s post-Katrina debt would be forgiven under a bill approved in October by the Senate Banking Committee. The Senate bill would extend the NFIP for five years. But a vote by the full Senate on it has been blocked by Louisiana lawmakers who are concerned it would boost insurance rates in their state.

The second story, concerning the release of the GAO report on the National Flood Insurance Program, boiled the report down the following:

The GAO, the investigative arm of Congress, said questions remain about the Federal Emergency Management Agency’s handling of flood-damage claims processed by private insurers under the National Flood Insurance Program (NFIP).

The GAO urged Congress to empower the agency to examine both wind and water claims data related to hurricane damages. It also said state regulators need to strengthen licensing and training requirements for insurance adjusters.

Alabama Republican Rep. Spencer Bachus said the GAO report contains “sensible recommendations” and deserves further discussion in the House of Representatives Financial Services Committee, where he is the ranking Republican member.

However, while Rep. Bachus is the ranking Republican member of the committee Mr. Drawbaugh evidently did not see fit to report on the reactions of the Democrats running the House Financial Services Committee to the GAO report they ordered. Curious.

I also found it equally strange that Mr Drawbaugh as did not report on the “inherent conflict of interest” in the current system of private wind insurers adjusting flood claims or the problems associated with damage related to multi peril catastrophes like hurricanes contained in the GAO report:

Insurance coverage gaps and claims uncertainties can arise when coverage for hurricane damage is divided among multiple insurance policies. Coverage for hurricanes generally requires more than one policy because private homeowners policies generally exclude flood damage. But the extent of coverage under each policy depends on the cause of the damages, as determined through the claims adjustment process and the policy terms that cover a particular type of damage. This process is further complicated when the damaged property is subjected to a combination of high winds and flooding and evidence at the damage scene is limited. Other claims concerns can arise on such properties when the same insurer serves as both NFIP’s write-your-own (WYO) insurer and the property-casualty (wind) insurer. In such cases, the same company is responsible for determining damages and losses to itself and to NFIP, creating an inherent conflict of interest.

Though we are not so called “professional” news reporters at the Insurance Issues Forum, I was able to land a copy of Senator Vitter’s letter to Senators Dodd and Shelby by contacting Gene Taylor’s office and simply asking for it. Since Mr. Drawbaugh did not see fit to speak with either of Louisiana Senators or HR3121 sponsor Rep Gene Taylor I guess it is understandable, though somewhat unprofessional that he reported a false reason for the hold on the Senate re authorization of the National Flood Insurance Program. Concerns over “boosting insurance rates” was not the reason Senator Vitter had a problem with the Senate version of the bill, rather:

I believe any legislation reforming the flood insurance program must make an increase in the maximum coverage levels available to policyholders. As you know, your bill does not do this. The current coverage levels have not been increased since 1994. With inflation and increased home prices since that time, the current coverage levels are severely outdated. The bills passed by the U.S. House of Representatives last and this Congress increased the current maximum levels of $250,000 for residential properties and $500,000 for non-residential properties to $335,000 and $670,000 respectively. These reasonable adjustments in the coverage levels would bring more certainty and affordability to the insurance market.

Also, flood insurance reform legislation should allow policyholders new lines of optional coverage, including coverage for business interruption and full replacement costs of contents. Businesses in Louisiana continue to suffer as we recover from Hurricanes Katrina and Rita, and skyrocketing insurance costs and fewer providers offering coverage remain among the most significant barriers to full economic recovery. These new coverage options, which could be offered at market rates so as not to add any additional financial strain on the program, would go a long way in providing some stability and affordability to the insurance market.

Additionally, I believe Congress must address the overall insurance crisis along the Gulf Coast centered on the lack of coverage options and affordable rates for wind damage. Lack of available or affordable general liability coverage including wind coverage is now one of the single biggest obstacles to recovery. Rates have skyrocketed well beyond what seems necessary to cover the risk and are not abating. Either wind coverage should be added to the National Flood Insurance Program at market rates as the House-passed bill does, or we must take other action outside the flood insurance program to address the broader insurance crisis. This could include a catastrophic backstop, similar to what we have for terrorism risk insurance.

We stand ready to correct any factual inaccuracies we find in hard news reporting on this issue, which impacts so many along America’s coastlines. Reuters owes us a correction.

sop