And the saga of FEMA and NFIP Continues, what needs to be done to return the programs to their intended purpose?

 

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Mixed progress seen in fixing flood insurance program Wednesday, December 20, 2006 By SEAN REILLY Washington Bureau WASHINGTON -- Swamped by an unprecedented wave of flood insurance claims after hurricanes Katrina and Rita last year, the Federal Emergency Management Agency resorted to an unprecedented approach: permitting payments in some cases without first inspecting the properties in question, according to a new report by the Government Accountability Office, the investigative arm of Congress. In Alabama, Louisiana and Mississippi, for example, FEMA authorized payments for losses where buildings were washed off their foundations and the square footage requirements were known, the report says. But while such "expedited methods" allowed the agency to close out most claims relatively quickly, those methods did not always result in accurate payments. "Reinspections" of a small sample of Katrina claims handled with those methods found payment errors in just 1 percent of cases, the report found. Those mistakes, however, resulted in overpayments ranging from $40,000 to $80,000 per claim. And because FEMA did not use statistically representative techniques, it's unclear whether that sample of expedited claims was typical. In other areas as well, the GAO found that FEMA and other agencies were progressing unevenly toward bolstering operation of the government-subsidized program, now heavily in debt to the federal treasury. As of October, only 15 states had complied with a 2004 law by creating minimum training and education requirements for agents who sell flood insurance, the report say. Alabama was not among them. On Tuesday, state agent licensing manager Jimmy Gunn said the insurance department will notify agents within the next month or so that they must take a three-hour class or jeopardize their ability to sell flood insurance. The state did not act sooner, Gunn said, because it was waiting for the National Association of Insurance Commissioners, an advisory body, to develop a standard policy. The association recently did so. As the 2004 law also required, FEMA has created an appeals process for policyholders whose claims are denied. It has yet to begin a pilot program aimed at reducing losses from homes and other properties that flood repeatedly. Such "repetitive loss" claims comprise a disproportionate drain on the program's finances, studies show. As envisioned by Congress, the pilot program would give states and communities up to $40 million annually to buy, move, flood-proof or demolish such structures. In response to the report's findings, FEMA officials said they plan to begin funding projects this fiscal year. They also intend to use a more representative sampling method to determine whether claims are being handled accurately. If such issues seem arcane, they can be critically important to tens of thousands of policyholders along the hurricane-prone Gulf Coast. Created in 1968 because private insurers were reluctant to provide coverage, the National Flood Insurance Program, or NFIP, now encompasses some 5.3 million policies across the country, with more than 51,000 in Alabama, according to the most recent statistics available. As the Press-Register reported last week, the flood insurance program is more than $17 billion in debt to the federal treasury, mainly as a result of Katrina losses. In this fiscal year, interest payments on that debt are projected to swallow roughly a third of the program's premium revenues. So far, however, Congress has failed to approve legislation aimed at putting its finances on sounder footing. The GAO report, one in a series on the flood insurance program, offers one of the most comprehensive overviews of the impact of Katrina. As of the end of May, FEMA had paid out on more than 4,900 claims in Alabama alone, with the average payment at almost $54,400. Throughout the Gulf region, the number of paid losses amounted to about 162,000, by far the largest in the program's history. In what could be an ominous portent, the average Katrina-related payout for the region as a whole was $94,800, or roughly three times the previous record set in 2004, when a string of hurricanes battered Florida.   © 2006 The Mobile Register© 2006 al.com All Rights Reserved.

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It would have been nice if the above article had gone a little deeper into what constitutes "debt" of one federal agency to another. As I understand it, NFIP does not operate as a normal insurance company. They do not keep assets (premiums) and invest them as would be required of other insurance companies. The unused premiums are gathered into that black hole that is the federal budget and spent as if it were any other tax money. When a severe loss occurs, then, the NFIP must go begging to Congress to apportion money to pay the claims. I would like to see how much money has been paid into NFIP since 1968, how much has been paid out, and what the potential interest might have been if the money had been invested instead of frittered away by the government. Then I might understand whether NFIP is really in debt or whether it is a game of hide the ball being played by our elected officials.

If I misunderstand how this works, someone please let me know.  Otherwise, I think we have found a prime example of what happens when the government controls the insurance industry.  Reserves disappear and the whole thing costs us more money than it otherwise would.

If Chubb goes after high dollar excess over NFIP cover up to 15 mil this will add some very good adjusters to the flood ranks.

It seems a TPA is in place for Chubb and they will take the hand off's from the primary adjusters. It looks like the premium will be in the .6% or .7%. Like to see a policy to see if the conditions are much broader. The release said the Chubb policy would have ALE coverage.