By Kristine Rushing, COO | Insurance Division
This blog post is in response to NPR’s investigation, “Business Of Disaster: Insurance Firms Profited $400 Million After Sandy”
Sometimes the media can really skew a situation to create a reaction against something or someone, and in this case, it’s against the insurance companies.
Flood is a federal program with set rates that are determined by NFIP or the National Flood Insurance Program. NFIP was created in 1968 by Congress to provide flood insurance protection to property owners, in return for local government commitment to sound floodplain management and flood disaster mitigation efforts. Since 1983, NFIP allowed insurance companies to deliver and service flood policies in their own name. Keep in mind that the policy coverages and rates are set by NFIP and not the insurance companies.
As mentioned in the article, “This is a fee-for-service operation,” said Hartwig, president of the Insurance Information Institute. “The federal government determines what the appropriate payment is.” In theory, homeowners shouldn’t be shortchanged because the insurance companies are only acting as a middleman between FEMA and the homeowners making claims, essentially contracting with the government to evaluate damage and assess compensation, which is true.
The claims payment and what is covered is determined by the actual cause of loss and the coverages provided by the coverage form. So in essence, some of the circumstances in the article could really be situational based on the actual cause of loss, whether the homeowner had flood coverage, if the damage was actually caused by flood, if it was caused by flood then was the home a primary home, secondary or rental home.
Hartwig’s statement, “The vast majority of those individuals who in fact did have coverage are happy with their insurance companies and they’re happy with the way the process unfolded for them” leads me to believe the perception of having coverage by a homeowner may have also been an issue.
I’m also perplexed by this statement by Jeff Coolidge after reviewing adjusters’ files for multiple insurance companies after Superstorm Sandy. He says he quit his job in part because he was so bothered by what he was doing. The insurance firms he worked for used phrases like “pre-existing,” “earth movement” or “ground settlement” to reject homeowners’ claims of flood damage. “They use ‘settlement’ a lot. ‘Sorry your house looks like it shifted to the left a little bit, but I think it was like that when you bought it,’” Coolidge said.
The NFIP policy forms have been updated and revised several times since 2010. A few of the exclusions found in 2010 are:
–Loss of revenue or profits
–Loss of use of the insured property or described location
–Any additional living expenses incurred while the insured building is being repaired or is unable to be occupied for any reason
–A loss directly or indirectly caused by a flood that is already in progress at the time and date of the policy term begins or for loss to property caused directly by earth movement even if the earth movement is caused by flood (i.e. earthquake; landslide; land subsidence; sinkholes; destabilization or movement of land that results from accumulation of water in subsurface land area or gradual erosion.)
“‘The idea of the original program was brilliant,’ says Robert Hunter, who ran the flood program in the 1970s. ‘The program would become less and less expensive because people would be building safer and safer structures and … the program would become self-sufficient and carry its own weight and not lose money.’ But that has never happened. The program has run deficits from the beginning. In the 1980s it was $700 million in debt. In the 1990s, it was $1 billion in debt. And today, after Katrina and Sandy, the program is $23 billion in the red.”
I agree that there does need to be reform with the flood program which is currently being addressed by legislatures. Included in this reform is securing adequate rates to ensure that the program sustains the flood activity that we’ve seen since 1980.
It really bothers me that insurance companies are always broadly painted in a negative manner. The primary intention of insurance is to make a client whole again after sustaining a loss and not for the insured to profit. Insurance is also not intended to be a maintenance program for the upkeep of the home or building. It’s intended to respond to catastrophic damage that the insured may face.