Newspaper article The Record (Bergen County, NJ)

FEMA Criticized on Flood Policies

Newspaper article The Record (Bergen County, NJ)

FEMA Criticized on Flood Policies

Article excerpt

The agency that sets the rules for government-backed flood insurance policies lacks basic controls to avoid fraud or waste, or to identify systemic problems, a federal watchdog said Tuesday.

The report by the Inspector General's Office for the Department of Homeland Security reinforced questions raised after Superstorm Sandy about the coverage that hundreds of thousands of New Jersey property owners buy from private companies, many of them because federal law requires it.

The Federal Emergency Management Agency, which runs the flood insurance program, agreed to a series of changes recommended in the report, and said it is working to develop a more "customer-centric" system.

"We are overhauling and realigning our entire organization," wrote David Bibo, FEMA's acting associate administrator.

The federal government backs about 5 million flood insurance policies nationwide, including more than 230,000 in New Jersey. The policies, designed by FEMA, are sold and serviced primarily through 79 private insurers under a program called Write Your Own.

The inspector general found that FEMA oversight of those insurers was so lax that in some cases the agency was not even trying to enforce its own rules. For example, FEMA is supposed to appoint one of its own attorneys to monitor a case when an insurer is sued by a policyholder, but FEMA told auditors it was not doing that because it did not have the personnel.

Policyholders whose claims are turned down in whole or in part by a private insurer have the right to appeal to FEMA. But FEMA's practice was to either uphold the denial, or send it back to the insurer who made the decision in the first place, auditors said.

"Because the ... company was the original decision authority for the claim, policyholders' concerns may not be fairly considered," the Inspector General's Office wrote. "According to a FEMA official, prior to Hurricane Sandy, the number of appeals was relatively low and a formal process for tracking appeals was never established."

When frustrated policyholders sued over a claim, lawyers for private insurers were required by FEMA to set budgets for litigation. But the budgets did not have to be approved, even though FEMA was ultimately on the hook for the cost.

In one case, auditors found a budget for pretrial motions was set at $87,000 in a case where the limit on the policy was $25,000, which means paying the full value of the policy would be less than one-third the cost of defending the suit.

The audit also found that, "conveniently," the vast majority of expenses for experts such as engineers hired to work on claims came in just below $2,500, the limit above which an elaborate approval process was needed.

No paper trail

Auditors reviewed 182 policies that had costs for expert expenses, and found 91 percent lacked adequate documentation, with many showing flat fees and no details of the number of hours worked or costs such as travel. …

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