Three and a half years after the most catastrophic storm in history slammed the state, FEMA is ordering sweeping changes to the flood insurance program. This following revelations private insurers were short-changing homeowners and amassing hundreds of millions of dollars in profits in the process. It’s illuminated in a new PBS Frontline documentary entitled “Business of Disaster”. The featured reporter is NPR‘s Laura Sullivan. She spoke with NJTV News Anchor Mary Alice Williams.
Williams: Thanks for being with us Laura. Billions of federal dollars have been spent on post Sandy disaster relief but some people aren’t back in their homes yet. What happened?
Sullivan: So what we found is while all those homeowners were struggling and tried to get back into their homes, often paying their rent and paying their mortgages and paying flood insurance at the same time on homes that were damaged or destroyed in the superstorm. At the same time private insurance companies were making anywhere from $200 to $400 million a year in profit off of the flood insurance program. It’s interesting because they don’t have to pay claims. They’re not paying the claims of homeowners in Sandy, taxpayers are. So this is pure profit after they paid all of their expenses in the program.
Williams: The homeowners — thousands of them — alleged private insurance companies that participate in the national insurance program underpaid them on their claims. Has that been documented clearly?
Sullivan: Yes and at this point FEMA reopened the claims review process for those homeowners and they said anyone who felt like their insurance companies had shorted them should come forward. More than 19,000 people came forward that in addition to the 1,700 who sued and so far of the reviews that FEMA has looked at more than 80 percent of those homeowners were underpaid by their insurance companies.
Williams: The head of the National Insurance Program Roy Wright says in the documentary there’s no incentive for insurance companies to underpay homeowners’ claims so why did it happen so frequently?
Sullivan: Well he is right about that. The way that the program is set up, the insurance companies really don’t have a reason to underpay claims. It’s not their money, taxpayers pay the claims. So what difference would it make to the insurance companies — how much they give a homeowner or don’t give a homeowner — but what we found in this investigation by unpealing the layers of this program is that what’s happening here — and this is a theory that we heard from people inside the business, from sources, from people on Capitol Hill, from adjusters and from people who work at the insurance companies is that this program has become so lucrative for the insurance companies that they’re trying to hang on to it, and yet at the same time this program is deeply in debt, it’s $23 billion in debt after Katrina and so now the theory goes that the insurance companies were trying to short homeowners to cut the debt of the program to save it so that they can continue to make money. It’s one of a number of theories we’ve heard.
Williams: So where’s the big failure? I’m sure there’s plenty to go around but was it FEMA’s failure to oversee the program properly?
Sullivan: Absolutely. I mean you just put the nail on the head there. I mean what we heard time and again from everybody from this program and from FEMA itself is that while they have some oversight of this program they did not have enough. They have for 40 years had this program in place and it has consistently made money for the insurance companies but there has been very little oversight of what’s happening in the program, how much, why the insurance companies are making this kind of a profit. They had never really looked at the numbers of how much profit these insurance companies are making. In 2009 the government audit told FEMA to find out what kind of a profit the insurance companies are making. It’s been seven years and when we sat down with FEMA they still didn’t know. So we ended up doing some of that math ourselves and came up with these figures.
Williams: OK, thank you very much. Tood work Laura Sullivan. And you can watch Frontline’s “Business of Disaster” on Thirteen at 10 p.m. tonight and again on Thursday at 3:30 a.m.
Sullivan: Thank you.