FEMA slammed for lax control over insurers during Sandy

A report from the Department of Homeland security concluded that the agency failed to avoid fraud, waste and other systemic problems with insurers administering flood policies

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The Federal Emergency Management Administration failed to exercise proper control over private insurance companies administering government-based flood insurance policies, a report from the Department of Homeland Security found.

According to the Inspector General’s Office, FEMA lacks basic controls to avoid fraud, waste and other systemic problems with insurers.

The report was requested after the aftermath of Superstorm Sandy raised questions about the efficacy of the National Flood Insurance Program. A series of complaints revealed that many engineering reports were doctored to exclude flooding as the cause of loss following the storm, leading to inquests and several changes in NFIP administration.

Currently, NFIP has 5 million active flood insurance policies nationwide serviced through 79 private insurers under the “Write Your Own” program. And while the changes since the 2011 storm were meant to make the program more “customer centric,” the new report indicates a long way to go.

The inspector general wrote that FEMA oversight of participating insurers was so lax, that in many cases the agency had given up on enforcing its own rules. As an example, the report shared that FEMA is meant to appoint one of its own attorneys to monitor a case in which an insurer is sued by a policyholder. Yet, the inspector found that auditors were not following through because it did not have the necessary staff.

Similarly, FEMA upheld several claims denials issued by private insurers without taking time to consider the appeal. In other cases, FEMA sent the case back to the insurer who made the initial decision.

“Because the…company was the original decision authority for the claim, policyholders’ concerns may not be fairly considered,” the report said. “According to a FEMA official, prior to Hurricane Sndy, the number of appeals was relatively low and a formal process of tracking appeals was never established.”

The department also found that FEMA repeatedly hired engineers to work on claims for just below $2,500 – the limit above which an elaborate approval process was needed.

All told, auditors reviewed 182 policies that had costs for expert expenses and found that a whopping 91% lacked adequate documentation.

“Without detailed invoices and receipts, FEMA cannot be certain that expert expenses are reasonable,” the inspector general said.

Senator Bob Menendez, who has historically been critical of NFIP and private insurance companies, greeted the report with similar derision.

“FEMA was happy to give these Write Your Own insurance companies a blank check to litigate against Sandy victims with every hard-nosed tactic imaginable, wasting millions of policyholders’ dollars in never-ending court costs to cover up widespread underpayment, rather than using even a fraction of that money to pay storm survivors,” Menendez said.

He also called the claims appeals process a “total shell game” and renewed his call for FEMA to reopen all Sandy cases and consider dropping private insurers from the program.

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