SCHUMER: FEMA MUST DEMAND VASTLY IMPROVED PERFORMANCE FROM INSURANCE COMPANIES THAT RUN FLOOD INSURANCE PROGRAM– SAYS IF COMPANIES DON’T IMPROVE, FEMA SHOULD FINE THEM OR END THEIR CONTRACTS
National Flood Insurance Program is Run by FEMA but Policies are Implemented by a Network of Private Adjusters and Insurance Companies – Nearly 30K Sandy Claims Remain “Open”
In Many Cases, Federal Disaster Relief Dollars Can't be Obtained until Flood Insurance Claims are Completely Processed – Slow Payments From NFIP Are Causing Unnecessary Hardship for Homeowners Already Devastated by Sandy
Schumer Urges FEMA to Demand Insurance Companies Immediately Improve Performance, Says They Should Consider Cutting Ties With Companies That Can’t Make The Grade
Yesterday, U.S. Senator Charles E. Schumer called on the Federal Emergency Management Agency (FEMA) to immediately expedite the processing of flood insurance claims through the National Flood Insurance Program (NFIP) for homeowners impacted by Superstorm Sandy. Shockingly, more than 100 days since the storm struck, only 52% of New Yorkers' flood claims have been fully processed, greatly slowing down, or in some cases preventing, the rebuilding process.
The NFIP is run by FEMA, but largely administered by a network of private insurance companies who sell and service the policies (called “wrote-your-own” insurers, or “WYOs”), and independent claims adjusters hired by FEMA. These companies take on no additional risk by participating in the NFIP – their expenses are reimbursed by FEMA – and they profit from generous fees that can add up to as much as one-third or two-thirds of all premiums collected on NFIP policies in a given year. Schumer said that FEMA must immediately require far better performance and quicker payouts from these companies, and that FEMA should consider requiring them to hire more claims adjusters and inspectors. FEMA should penalize them by deducting from their fees, and if a company is repeatedly late, then FEMA needs to consider ending their participation in the program.
"New Yorkers have been paying their flood insurance premiums for years and years, and they deserve far better service than they're getting from the companies that are so well compensated to implement our flood insurance program," said Schumer. "Families who saw their homes flooded and their possessions washed away need these payouts to rebuild, and in many cases also need their claims to be processed so they can access other types of federal aid. FEMA, who provides lucrative contracts to the companies that service these policies, needs to step in and light a fire under them so the payments get out the door faster. If these companies can't process the claims in an acceptable amount of time, perhaps FEMA should not allow them to take part in the program, or should reduce the fees they are paid."
In his letter, Schumer asked FEMA to describe in detail the policies and procedures FEMA uses to ensure that the WYOs and independent adjusters respond to claims in a timely manner, including whether FEMA imposes deadlines for claims processing and what penalties, if any, are imposed for missed deadlines. Schumer also asked FEMA to release comprehensive claims data that shows the processing times on the local level (only statewide data is currently available publicly) and to provide an assessment of insurance companies’ performance to date in ensuring timely resolution of claims.
FEMA provides homeowners with flood insurance through the NFIP, which was established by Congress in 1968 because most private insurers have simply stopped offering flood insurance policies. The Write-Your-Own (WYO) Program is a cooperative undertaking of the insurance industry and FEMA and operates as part of the NFIP. Insurance companies are allowed to write and service the Standard Flood Insurance Policy in their own names and companies receive an expense allowance for policies written and claims processed and the federal government retains responsibility for underwriting losses. Schumer said that since FEMA will pay for additional adjusters and inspectors, hiring them should not pose a problem for participating private companies.
Since Superstorm Sandy hit New York, NFIP has only closed fifty-two percent of insurance claims associated with the storm. In some cases, this backlog has prevented the delivery of other sources of federal aid because federal law requires that such assistance only cover uninsured damages (so insurance claims must be processed and the amount of the insurance settlement known before homeowners receive emergency aid). By law, FEMA cannot provide individual assistance to cover damages that are already covered by an individual or business’s flood insurance policy. Schumer noted that the companies who service the NFIP policies are doing poorly even when compared to non-flood claims, over 80% of which have been processed.
A copy of Senator Schumer’s letter to FEMA Administrator Craig Fugate appears below:
Dear Administrator Fugate:
I am writing to express my deep concern regarding the efficacy of the National Flood Insurance Program (NFIP) in ensuring that policyholders impacted by Superstorm Sandy receive timely payments, and to request that the Federal Emergency Management Agency (FEMA) take all necessary actions to ensure that Sandy victims begin to receive their insurance settlements in a timely manner.
Superstorm Sandy was a tragedy of historic proportions for the New York area. The damage was widespread, and many areas were almost completely devastated. I understand that the sheer magnitude of this disaster has made FEMA’s response – in managing the NFIP as well its other critical response efforts – an enormously complex challenge, and that many of the insurance company employees and claims adjusters who implement NFIP on the ground were personally impacted by the storm as well. But it is now more than three months after Sandy hit New York, and the frustration of my constituents, who are waiting on their insurance payments and relying on those payments to repair and rebuild their homes, and whose access to additional federal aid must wait for their insurance claims to be processed, is fast reaching the boiling point.
I understand that much of this work is not done by FEMA directly – you hire independent adjusters and/or implement the NFIP through a network of “write-your-own” insurance carriers. But FEMA is ultimately responsible for the performance of the NFIP. And on that score, the NFIP is decidedly underperforming: FEMA has closed barely half of all claims filed in New York (52.2% according to the most recent available data), more than 100 days after the storm. Homeowners have encountered plenty of problems receiving the full amount they are owed under non-flood claims, but even those claims have been processed more quickly – over 80% of all non-flood claims to date have been closed.
Resources should not be a meaningful constraint in this instance – WYO insurers are reimbursed for the costs they incur to hire adjusters, so if more adjusters are needed FEMA should require that they hire more. Moreover, past studies have shown that “the amounts WYOs receive for their services represent from one-third to two-thirds of the total NFIP premiums collected annually”. The WYOs are more than adequately compensated for their servicing of NFIP policies, and it is incumbent on FEMA to ensure that they are held accountable for processing claims in a timely manner.
I respectfully request that you provide a description of all policies and procedures FEMA has in place to ensure that adjusters and WYO insurers investigate and resolve outstanding claims in a timely manner. What are the applicable deadlines for adjusters to investigate a claim, and submit a report? What is the deadline for making final determinations on claims? And what policies are in place to ensure compliance with any relevant deadlines? WYOs are well-compensated for servicing NFIP policies, and if they are not performing in accordance with reasonable standards, they should be prohibited from participating in the WYO program or have their compensation reduced as a penalty.
I also respectfully request that you provide an assessment of FEMA’s performance to date in ensuring timely resolution of claims, and any steps you think FEMA should take to reduce delays experienced by policyholders. Finally, I request that you provide detailed claims processing data for all affected areas, to enable an assessment of performance on both a county-by-county and company-by-company basis.
I thank you and your staff for your hard work on so many of the important issues we’ve faced in the wake of this storm. We have worked together amicably and productively on several issues following this disaster and others, and I look forward to working with you further to ensure that the NFIP is there for homeowners when they most need it.
Sincerely,
Sen. Charles E. Schumer