A prominent US senator has publicly questions whether private insurance companies ought to be allowed to make their average $1 billion profits selling government-backed flood coverage.
Senator Bob Menendez, who has been at the forefront of the investigation into whether insurers shortchanged Superstorm Sandy victims, spoke out at the first meeting of a government task force examining Sandy recovery.
“They take 30 cents of every premium dollar to sell and service policies,” said Menendez. “Policyholders aren’t always getting their money’s worth.”
That 30% premium fee is unacceptable, Menendez said, given recent controversy over the role insurance companies and affiliated engineering firms played in denying legitimate flood claims from victims of the 2012 storm.
He wants Congress to consider changing the policy.
Constructing a better flood insurance system is one item on the task force’s agenda, which was drawn up by FEMA Administrator Craig Fugate. Fugate has already spoken out against the current model of servicing policies through Write Your Own (WYO) insurance companies, saying it “isn’t working.”
He wants the task force, which is composed of senators from New York and New Jersey as well as victim groups, to come up with recommendations to Congress on ways to improve the system.
Fugate takes particular issue with the fact that many disaster victims are visited by a FEMA inspector, who determines whether they are eligible for assistance, but payments are contingent on a flood insurance inspector’s opinion on how much of a loss is covered. Instead, he wants one person to fulfill both roles.
FEMA is currently dealing with the fallout of reopening 140,000 Sandy claims, which were reported to be denied after insurance and engineering companies minimized and mischaracterized damages to reduce flood insurance payouts to victims.
Fugate has pledged to repay what the government owes to claimants, but needs additional documentation to verify that claims are legitimate.
“I’m sure when this gets out, people are going to be trying to game the system,” Fugate said.
