Skip to main content

National Flood Insurance Program: Greater Transparency and Oversight of Wind and Flood Damage Determinations Are Needed

GAO-08-28 Published: Dec 28, 2007. Publicly Released: Jan 30, 2008.
Jump To:
Skip to Highlights

Highlights

Disputes between policyholders and insurers after the 2005 hurricane season highlight the challenges in understanding the cause and extent of damages when properties are subjected to both high winds and flooding. Questions remain over the adequacy of steps taken by the Federal Emergency Management Agency (FEMA) to ensure that claims paid by the National Flood Insurance Program (NFIP) cover only those damages caused by flooding. GAO was asked to evaluate (1) issues that arise when multiple insurance policies provide coverage for losses from a single event, (2) state regulators' oversight of loss adjusters, and (3) information that NFIP collects to assess the accuracy of damage determinations and payments. GAO collected data from FEMA, reviewed reinspection reports and relevant policies and procedures, and interviewed state regulatory officials and others about adjuster oversight and NFIP.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
To strengthen and clarify FEMA's oversight of WYO insurers, particularly those that service both wind and flood damage claims on the same property, the Congress may wish to consider giving FEMA clear statutory access to both wind and flood damage claims information available from NFIP's WYO insurers in cases in which it is likely that both wind and flooding contributed to any damage or loss to covered properties, enabling NFIP to match and analyze the wind and flood damage apportionments made on hurricane-damaged properties in a systematic fashion, as appropriate.
Closed – Implemented
The Flood Insurance Reform Priorities Act of 2010, which was passed by the House of Representatives on July 15, 2010 and referred to the Senate Committee on Banking, Housing and Urban Affairs on July 19, 2010, contains provisions would indicate that Congress has given consideration to this matter. Specifically, the bill requires WYO (write your own) insurers to maintain files, available to FEMA, that would detail the apportionment of wind and flood damage on individual properties. As of September 19, 2011, similar provisions were part of legislation being developed in the Senate for the reauthorization of the program.
To strengthen and clarify FEMA's oversight of WYO insurers, particularly those that service both wind and flood damage claims on the same property, the Congress may wish to consider giving FEMA clear statutory access to the policies, procedures, and instructions used by WYO insurers and their adjusters for both flood and wind claims to assess and validate insurers' claims adjustment practices for identifying, apportioning, and quantifying damages in cases where there are combined perils.
Closed – Implemented
The Flood Insurance Reform Priorities Act of 2010, which was passed by the House of Representatives on July 15, 2010 and referred to the Senate Committee on Banking, Housing and Urban Affairs on July 19, 2010, contains provisions that would address this matter for congressional consideration. Specifically, the bill requires WYO (write your own) insurers to provide, for approval by FEMA, their procedures for adjusting claims where individual properties sustained both windstorm and flood damage. As of September 19, 2011, similar provisions were part of legislation being developed in the Senate for the reauthorization of the program.

Recommendations for Executive Action

Agency Affected Recommendation Status
Other State insurance commissioners, acting through National Association for Insurance Commissioners, should enhance the quality and consistency of standards and oversight for all types of claims adjusters among states through more stringent and consistent licensing and training requirements for adjusters, including, in those states where appropriate, training to assess and apportion damages due to wind, flooding, or both.
Closed – Implemented
Following Hurricane Katrina, GAO issued a report on the National Flood Insurance Program that highlighted issues related to insurance adjustments on properties subject to both wind and flooding (GAO-08-28) and recommended enhanced and more uniform training and requirements for adjusters. Since the report was issued, the NAIC has continued to promote more consistent licensing and training requirements for adjusters and has adopted a Guideline for Independent Adjuster Licensing. The Guideline includes provisions on license requirements, examination, continuing education and reporting of disciplinary actions. Also, the NAIC has formed a working group for Adjuster Licensing, which has created the NAIC Independent Adjuster Reciprocity Best Practices and Guidelines. The draft was recently exposed for comment. In addition, the working group created and adopted a Uniform Adjuster Licensing Application for Individual and Business Entity in 2010. This new application is customized for adjusters, who were previously subject to state-specific forms or the Uniform Application for producers. Such actions should enhance consumer protection, including more effective oversight of adjusters.

Full Report

Office of Public Affairs

Topics

Damage claimsstate relationsFlood insuranceFloodsHurricane KatrinaHurricane RitaHurricanesInsurance claimsPolicy evaluationProgram managementDisaster mitigationPolicies and proceduresTransparency