It won’t make Sandy victims feel much better, but federal officials are now conceding that many victims were indeed cheated by insurance companies on their damage claims and that the complaints were not merely the frustrations of navigating a complex bureaucracy. It is also clear that FEMA (Federal Emergency Management Agency) itself was culpable in fostering the abuses and allowing them to continue.
Too bad it took three-and-a-half years, multiple media investigations and lawmaker pressure to reach this point.
FEMA last week announced several reforms to its flood insurance program to improve oversight and transparency aimed — we hope — at rooting out the rampant abuses of the system. But for many storm victims it’s too late; the recovery process has already been as much if not more of a disaster than superstorm Sandy itself.
Legitimate claims have been delayed, denied or shortchanged for thousands of property owners in New Jersey and New York, with failures on both federal and state levels. The process was so badly butchered and stories of bogus engineering reports and other insurance-company scams so widespread that FEMA was eventually compelled to reopen cases for anyone who believed they were underpaid. Officials now say 80 percent of those claiming to have been underpaid were correct.
WATCH: Sandy advocate calls for investigation of FEMA
But even that process was corrupted. FEMA whistleblowers said they were told to ignore engineering reports and rule on claims based on a formula that still underpaid victims. FEMA policy also withheld all payments from insurers until appeals had run their course, even undisputed portions. This was another means for insurers to discourage appeals, but FEMA now says it will change that policy and allow victims to receive partial claims while an appeal continues.
So why was this program so badly mismanaged? As always, follow the money. An investigation by National Public Radio and PBS’ Frontline revealed that dozens of insurers made fat profits from Sandy. Those insurers were paid to assess claims under the National Flood Insurance Program, but their job was merely to decide how to dole out federal funds, not their own. They faced no risk. So why be so anxious to underpay victims? Insurance companies are in the business of paying out as few benefits as possible, of course, but in this case they were further motivated to protect a money-making program that, after Hurricane Katrina in 2005, was widely criticized for overpaying on claims.
MacArthur: FEMA chief should resign, hearings convened
The deck has been stacked against Sandy victims, on multiple levels. Insurers often pulled out the “earth movement” ploy to deny claims, maintaining that damage was the result of soil shifting — uninsured, of course — rather than the onrushing ocean. Original appeals to FEMA were often handled by the insurers themselves, who, not surprisingly, typically upheld their own findings.
This shouldn’t be that hard. Honest assessments, independent appeals and an open process in which all relevant information is shared with victims would make the flood insurance program operate much more fairly than it does today. FEMA’s reforms could help achieve that — if officials are sincere. We won’t know that until the next major disaster.Like this article? Chip in $5