U.S. Senate Report Finds No Systematic Underpayment of SuperStorm Sandy-Related National Flood Insurance Program Claims

Jun 23, 2015


The results of a highly anticipated study undertaken by the United States Senate Committee on Banking, Housing, and Urban Affairs’ (“Committee”) Banking Investigative Group on alleged National Flood Insurance Program (“NFIP” or “Program”) underpayment of claims filed in the wake of SuperStorm Sandy was released today, June 23, 2015.  Its goal was to provide a programmatic overview of the NFIP claims process in order to help Congress assess the adequacy of the Program’s structure and function in light of Sandy-related challenges.

To view the 81-page report, click here.   To access an archived Webcast of today’s briefing, click here.

In his opening remarks, Senator Richard Shelby (R-Ala.), Committee Chairman specified that ” . . . the investigative team’s review does not include an examination of specific allegations of (NFIP/Sandy-related) fraud, which are still in litigation.”

Overally, the report concluded no presence of any systematic error bias or any general pattern of underpayment across the NFIP. 

Explaining that theories of systematic underpayment based upon write-your-own (“WYO”) or adjuster fears of having to repay overpayments are inconsistent with available data, the Banking Investigative Group concluded that the most plausible explanation for Sandy claims management difficulties has been simply that the complex nature of the standard NFIP flood policy combined with the scale of the catastrophe overwhelmed the NFIP’s supply of adjusters and engineers inevitably resulted in problems.

The report did not deny the existence of underpayments, however, noting that, ” . . . as with any catastrophic event, errors are to be expected, and with 144,484 Sandy claims having been made, it would be surprising if no errors had occurred.  Moreover, even a low error rate in the processing of Sandy claims would likely equate to a considerable number of policyholders who were underpaid.”

The Banking Investigative Group acknowledged that managing the NFIP is a considerable challenge.  On both the WYO and the Direct sides of the Program, claims management involves complex chains of contractors and vendors, which make detailed control by the Federal Emergency Management Agency (“FEMA”) or the WYOs difficult. 

Because the Program is highly and explicitly reliant upon the independent judgment of field personnel, the report recommended that, given this reliance, it is essential that the NFIP have strong processes for identifying payment errors, allowing policyholders to make claims for supplemental payment and appealing denials of coverage.

The report also explains how the NFIP claims management process works, how its various pieces interact, and how FEMA attempts to ensure quality control.  It then explores the incentive structures that face insurance companies, claims processing vendors, adjusters, and engineers, and the management challenges that confront the NFIP as it attempts to handle catastrophic flood events.

Originally scheduled for tomorrow, June 24, a subsequent Committee hearing entitled “Assessing and Improving Flood Insurance Management and Accountability in the Wake of Superstorm Sandy” was canceled, according to the Committee Web site.  No new date has been posted.

Tomorrow’s witnesses were to have been:

  • The Honorable Joseph Nimmich, Deputy Administrator; FEMA
  • Mr. Roy E. Wright, Deputy Associate Administrator for Insurance and Mitigation, Federal Insurance and Mitigation Administration; FEMA
  • Mr. Jordan Fried, Acting Director, Risk Insurance Division, Federal Insurance and Mitigation Administration; FEMA
  • Mr. James Sadler, Emergency Management Specialist, Federal Insurance and Mitigation Administration; FEMA


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