More House hearings on NFIP flood payments

Another hearing was held on the National Flood Insurance Program’s Katrina payments Monday in the U.S. House of Representatives.  I listened to some replays of parts of the hearing here, which appears to be the website of Speaker Nancy Pelosi.  The hearing was a joint meeting of the Financial Services Subcommittee on Oversight and Investigations and the Homeland Security Subcommittee on Management, Investigations and Oversight.  Speaking of oversight, how about some oversight on the length of subcommittee names?

One of the featured aspects of remarks and questions by Rep. Gene Taylor, of Mississippi, was this June 11 story by Rebecca Mowbray in the Times-Picayune.  Not a whole lot new in the story, and it refers to a "recent" General Accounting Office report on the NFIP.  The report came out in December 2006, but I guess that could be recent, depending on how you look at it.  Although the story casts the GAO report as harshly critical of FEMA and Katrina claims adjusting, I read the report, which you can see here, and it didn’t seem so harsh to me.  

I found a couple parts of the report more interesting than the sections that were included in the Times-Picayune story.  One of these was this passage on page 17 about the inherent financial insecurity of the NFIP:

However, by design, the program is not actuarially sound because federal law authorized subsidized insurance rates to be made available for policies covering some properties to encourage communities to join the program. As a result, the program does not collect sufficient premium income to build reserves to meet the long-term future expected flood losses. 

Until Katrina, the NFIP occasionally went in the red during bad hurricanes, but was able to repay funds borrowed from the Treasury with interest.  But Katrina was so much bigger, the NFIP went into debt to the Treasury by $16.9 billion, far more than it can repay with premium income of only $2 billion a year.  The report also notes that no proposal before Congress would make changes that would result in the NFIP collecting enough premiums to build reserves large enough to deal with another Katrina. 

In considering the question of whether insurers improperly shifted wind damage onto flood policies, some numbers from the report are instructive about where to look.  Of the 162,000 flood insurance claims arising from Katrina, 135,000 were from Louisiana, with 83,500 in New Orleans alone. Alabama, Florida and Mississippi combined had 27,000 claims. The New Orleans claims likely predominantly involve flooding from canal breaches, with little wind damage.  So most of these claims can be segregated from the question, as could any others from Louisiana in areas where flooding was from overflows of natural or man-made bodies of water, rather than the type of storm surge that hit the Mississippi coast. 

Of the remaining claims, where flood payouts were substantially less than the value of the house, the flood payments could not have been improperly transferred to wind damage, because there would be a large amount of value left unpaid by the flood insurance.  So all those in this category can be segregated out as well.  Where the flood payment was equal to or nearly equal to the value of the house, or where the home was destroyed, whether by wind or water, making it harder to determine causation, would be the place to look.  I wonder how many residences that was, maybe someone else knows the answer.

It is also interesting that the report mentions that FEMA had also waived proof of loss requirements and authorized expedited claims processing in prior floods, although to a lesser extent.  I also note the report says Hurricanes Charley, Ivan, Frances and Jeanne generated some 33,888 flood claims in Florida in 2004.  That was a very bad hurricane year for Florida, with a lot of flood claims, and some very high winds as well.  I wonder why Congress is not also looking at flood payments from 2004 and other years as well.  One would think if purported transfers of wind damage to flood insurance was a problem now, it must have arisen before, albeit on a smaller scale. 

UPDATE: I forgot to address the Department of Homeland Security’s investigation into these matters. (DHS oversees FEMA, which oversees the NFIP). Some of you may remember the DHS report was due in April, but it is now June and the report has been as scarce as lawyers from the Scruggs Katrina Group at a George Dale campaign rally.  I am informed by a reliable source that DHS, which was directed by Congress to prepare the report, is saying it prefers not to be rushed and wants to issue a final, comprehensive report rather than merely good enough for government work.  



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3 Responses to More House hearings on NFIP flood payments

  1. More House hearings on NFIP flood payments

  2. Brian Martin

    A quick internet search would have answered your question. There are hundreds of wind or flood cases in Florida from 2004 hurricanes. The Chief Justice sounds like your biggest nightmare – he dares to suggest that the insurance company has the burden of proof to exclude coverage:
    “Chief Justice R. Fred Lewis questioned [insurance lawyer] Scherker’s assertion that hurricane victims are responsible to determine if it was wind or water that destroyed their homes. “There are people sitting there, and all that’s left is a lot,” he challenged. “It’s un-provable. It’s unknowable.”
    For whatever reasons, the Florida cases appear to be state issues more than federal concerns. The suits are in state court while the MS & LA cases are in federal court. Citizens, the state insurer of last resort, is the defendant in many cases since the big private companies had already abandoned Florida. Fewer homes were completely destroyed in FL, so homeowners were less likely to sue for wind if they got close to what they needed from flood insurance.
    With what we now know, I am certain that NFIP overpaid in Florida as well. The Katrina claims managers had worked Ivan and Frances. Adjusters have testified that they were trained that when damage was caused by the combination of wind and flood, the flood policy pays and the wind policy does not. That violates the contract with NFIP. It also is counter to the caselaw that says that the insurer has the burden to prove a loss is excluded in order to deny. Nothing in law or contract allows the insurer to assume that damage was caused by flooding and to pay only where wind is the only cause of damage, but that is what they did.
    Wind or flood? High court hears insurance case
    By Paige St. John
    Florida Capital Bureau
    TALLAHASSEE — Panhandle residents Lana and Bud Allen listened intently as the Florida Supreme Court heard arguments about whether state law requires insurance companies to pay policy limits on homes destroyed by wind and water in the 2004 hurricanes.
    They are not parties in the case, but their insurer, Florida Farm Bureau, is. The company has refused to pay full damages to the Allens, as well as other Panhandle area residents, who lost their houses in part because of flood water.
    Florida Farm Bureau vs. Eugene and Debra Cox is the first of hundreds of lawsuits over wind-versus-flood damage from the 2004 hurricanes to make it to the state’s highest court. A second lawsuit, against state-run Citizens Property Insurance, has also been certified to the high court for a hearing later this year.

  3. Unlike some people, I work for a living, so I don’t always have time to spend endless hours playing with the computer. Fortunately, I have you to set me straight.