Flood insurers under fire for allegedly spurious charges

Insurers are billing clients with surcharges 10 times higher than federal law dictates, though companies say they’re acting under FEMA guidelines.

Insurance News

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Insurance carriers providing Write Your Own insurance flood policies are being accused of billing clients for surcharges that are 10 times higher than federal law dictates.

According to Senator Bill Cassidy of Louisiana, several homeowners in the state are receiving bills with $250 surcharges on their National Flood Insurance Program policies on primary residences – despite the fact that the 2014 Homeowner Flood Insurance Affordability Act stipulates that the $250 surcharge is only to be applied to non-primary residential and non-residential properties.

Primary residences are only meant to be subject to a $25 surcharge.

“The vague information informs homeowners of the assessment of a $250 surcharge, even if the policy is covering a primary residence,” Cassidy wrote in a letter to FEMA Administrator Craig Fugate. “Upon contacting their WYO carrier, my constituents have been informed that the $250 surcharge would be automatically assessed to their policy based upon guidance by FEMA until the homeowner proves the home is his/her primary residence.”

Cassidy added that homeowners have been informed by their insurers that they have a 30-day window in which to verify their primary residency.

FEMA confirmed that it had instructed Write Your Own insurance companies to send advance verification notices to ensure the correct surcharge is being applied to all homeowners.

The administration required companies to send at least one letter no fewer than 90 days prior to policy expiration to policyholders whose coverage was originally applied for and written before April 1 of this year. Those who did not provide proof of primary residence when asked by their insurer were automatically billed with the $250 surcharge.

FEMA has not received many complaints about the policy, agency spokeswoman Susan Hendrick told the Times-Picayune.

“The congressionally mandated reforms to the National Flood Insurance program are designed to ensure the long-term stability of the program, while remaining sensitive to the needs of policyholders,” Hendrick told the news organization. “All policyholders in every state are subject to these Congressional reforms, and insurance providers have not reported widespread cases of errors to billing to FEMA.”

She added that policyholders being charged $250 for their primary residences can work with their insurance agent to reduce to surcharge to the correct $25 during the current policy year.

The surcharges were originally included in the HFIAA to make up for lost income resulting from the delayed NFIP premium increases. This year, flood insurance clients are seeing premium increases ranging from 15% to 18% on primary residence properties, and increases of up to 25% on secondary homes or homes that have suffered repeated losses.

The increases – which will rise incrementally over time – are part of Congress’s attempt to pay down some of the $24 billion debt incurred by NFIP after large losses from Hurricane Katrina and Superstorm Sandy.
 

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