Earlier this month, US Senator Bob Menendez outlined the beginning of a process of reform to the National Flood Insurance Program (NFIP), which faces an anticipated reauthorization ahead of its expiry in September.
Sen. Menendez, who is chair of the Sandy Task Force and a senior member of the Senate Committee on Banking, Housing and Urban Affairs, told Federal Emergency Management Agency (FEMA) deputy associate administrator Roy Wright that the flood insurance claims process following Hurricane Sandy was a “man-made disaster.”
Private insurers that handle FEMA claims were lambasted for “low-balling” homeowners whose properties were damaged by Hurricane Sandy, accused, in some cases, of adjusting engineering reports to avoid paying damages.
The Senator’s proposals to address the program’s problems included giving homeowners more time to appeal Federal Emergency Management Agency payouts, and penalizing insurance companies for short-changing consumers when it comes to claims.
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John Heintz, a partner at law firm Blank Rome LLP, told Insurance Business that while the Senator’s proposals are an important step in the right direction, he remains sceptical that they will be completely effective.
“This is an area where the insurance industry has long been reluctant to insure,” Heintz said.
“If you look at all of the Katrina and Sandy litigation, most of it is about the scope of flood exclusions and it’s because it’s just – to be fair to the industry – it’s difficult to underwrite effectively.”
Heintz stressed that some of the procedural concepts contained in Sen. Menendez’s proposals are important, particularly the extension to the current 60 day limit for homeowners to appeal FEMA’s claims decision – which would give the agency 90 days to rule, at which point the appeal would automatically be considered successful.
The current “strict time limitations on people who’ve just lost their houses” seem counter-productive, he added.
Overall, the NFIP is a response to the private market’s reluctance to underwrite what is a complex nexus of risks, and while the proposals will go some way to improving the program they will not be a fix-all, Heintz said.
“I don’t think you’re ever going to make those tensions go away completely unless you decide to do that with a totally public-funded approach, and I don’t think there’s any political appetite for that,” he commented.
