OK this preliminary GAO report’s findings are really quite astounding. The National Flood Insurance Program (NFIP) which is administered by FEMA does not collect the data necessary to know if the $16.2 Billion it paid out for flood claims related to Hurricanes Rita and Katrina is what it was obligated to pay.
Some background info to keep in mind. Homeowners obtain flood insurance through the NFIP because private insurers rarely cover it. But private insurers sell and service the flood insurance policies for the NFIP. Those insurers known as WYOs (Write Your Own) keep a portion of the premiuim for writing and servicing the policy but have no exposure to claims. After an event happens it is the WYO that assesses the flood damage using adjustors. If there is also a policy for wind damage then the adjustors apportion how much damage was caused by wind (private insurers responsibility to pay) and how much was due to flood (NFIP’s responsibility to pay).
So just think of how easy it would be for insurers to commit and get away with fraud given this…
In summary, based on our preliminary review, NFIP does not collect the information it needs to help evaluate whether it has paid only what it is obligated to pay under the flood policy for properties subjected to both high winds and flooding, such as those damaged by hurricanes Katrina and Rita. For these properties, NFIP did not systematically collect enough information to know whether there was wind damage, much less enough to understand how much of the damage was determined to have been caused by wind and how much was caused by flooding. Without the ability to collect information that documents both the flood and wind damage, NFIP’s capacity to evaluate the accuracy of its payments is limited. As mentioned earlier, this is particularly important in situations where the WYO insurer also insures the property for wind damages. This creates a potential conflict of interest when the same insurer makes both the wind and flood damage assessments, because the insurer is effectively apportioning losses between itself and NFIP.
And yes it appears the insurance comapanies fraudulently pushed wind losses to the flood damage column and thus the NFIP according to former insurance adjusters who brought a whistle blowers lawsuit against 8 insurance comapanies. Shocking heh?
More specifics HERE on what the insurance companies did.
I’m trying to come up with an apt metaphor to describe this situation and my imagination fails me. Help me out..ideas?
I can’t understand why this story is not receiving more notice. Taxpayers may have subsidized insurance companies to perhaps the tune of billions of dollars and the NFIP is essentially bankrupt. Incredible…