FEMA and Private Flood Insurance

The government is said to be actively considering ending private insurance companies’ participation in the federal flood insurance model. In the wake of Superstorm Sandy, allegations have emerged about fraud and unjust denials in the handling of claims. According to reports, the Federal Emergency Management Agency (FEMA) is being asked to reexamine its “Write Your Own “Insurance (WYO)  system which  is currently part of the National Flood Insurance Program (NFIP).WYO, which has been in operation since 1983 allows private insurers to write and service their own policies in their own names. The companies receive approximately 30% of premiums to cover their expenses and commissions.

Profit Versus Service

While it is accepted that profit and incentives are both understandable and needed to make participation in the flood insurance program attractive for private players, questions are being asked about whether the quantum of these incentives are commensurate with a federal program that is meantto assist those who suffer from loss due to flooding.

Another factor working against the private insurance companies is that there are about 80 companies selling this insurance using 80 different premium calculation systems and 80 different methods of calculating payouts. This multiplicity of systems leads to a huge amount of confusion and serious lack of clarity in the operations of the program. Additionally, it is also being claimed that since the WYO system does not cover the legal expenses of policy holders, the insurers are tempted into fighting homeowners in the courts.

The FEMA Response

Because of the claims and allegations being made, FEMA has agreed to reopen all the claims filed by Superstorm Sandy victims. These number about 140,000 and include over 2,000 that are presently in litigation.

FEMA also plans to review the complete insurance program in the light of the problems that arose after Sandy. It says that it will consider a wide range of reform options in an attempt to correct the flaws in the system and make it both fairer to policy holders and also more user friendly. A FEMA spokesperson recently said that “We expect WYO companies who partner with us to share FEMA’s values of putting survivors first.” The statement goes on to say that everything is open to evaluation, including the role of WYOs in the program.

What the Insurers Say

Insurance companies have strongly contested these allegations. They have denied any kind of wrongdoing and say that the WYO system does not offer any incentives for lowering payouts. They also state that over 99% of all Sandy claims have been paid and settled in as efficient a manner as is possible.

If you would like to know more about private flood insurance and how changes in FEMA policy will affect its operation, contact an insurance professional. He or she will be able to explain the ramifications of the system and guide you to the type and amount of insurance that is right for you. Flood insurance is a far more complex process than it appears to be on the surface and the guidance of an insurance agent will allow you to make the right decisions.