Senator Charles Schumer slammed private insurance companies participating in the National Flood Insurance Program last week, calling for FEMA to cease working with more than 80 carriers that manage flood policies and process claims.
“These independent companies simply do not have homeowners’ best interests at heart,” the senior senator from New York said Thursday.
He went on to link insurers’ “profit-driven motivations” with the alleged mistreatment of homeowners in the wake of Superstorm Sandy.
According to several lawsuits filed in affected states, NFIP-affiliated carriers exploited loopholes in the system to fraudulently reject claims after the 2012 storm. Carriers supposedly colluded with engineering firms to alter reports citing flooding as the cause of home damage, thus racking up hefty claims handling fees.
Though two lawmakers last week called for a change in the way flood insurance policies are serviced, Schumer’s statements mark the first time a high-ranking congressional leader has agitated for change.
Schumer proposed that the Federal Emergency Management Agency work with a single company to sell and manage policies – a plan that FEMA spokesperson Rafael Lemaitre said is being considered.
“Everything is the table,” Lemaitre told Newsday, saying government officials share Schumer’s concerns about the program.
Insurance industry professionals, meanwhile, are adamant that allowing just one company to service flood insurance in the US would ultimately hurt consumers.
“The immediate loser in this equation would be the policyholders,” Robert Hartwig, president of the Insurance Information Institute, said.
He stressed that scrapping carrier involvement would result in fewer options and less choice for consumers, as well as a stronger monopoly for the government.
Schumer’s remarks come at a time when the financially embattled NFIP is struggling to rid itself of more than $24 billion in debt, which was accrued following Sandy and Hurricane Katrina. As of April 1, premiums on primary residence properties are increasing between 15% and 25%, with 25% increases levied on secondary homes.
Policyholders must also deal with new surcharges: $25 for primary homes and $250 for all others.
The efforts to downsize the NFIP debt by moving toward more actuarially sound rates has spurred interest among carriers in the flood market.
“We are seeing that as NFIP costs increase, people are picking up the phone, calling their agent and saying ‘What do you have as an alternative?’” said Dan Freudenthal, president of Florida-based Agency Flood Resources. “In the coming three years, a lot of interesting things will happen. The private flood market is about to burst.”
If Hartwig is correct, accepting Schumer’s proposal that just one carrier service flood insurance policies may dampen these possibilities.
