Flood Insurance - Politics at Play
Property owners who need to have flood insurance are going to face huge increases in premiums. Those in the Federal Emergency Management Agency and National Flood Insurance Program explain that the program, which has built up a $24 billion dollar debt due to undercharging policy holders in high risk flood, has to now change direction. The “excuse” is that Hurricane Sandy, which hit New Jersey and New York the hardest, has made the need urgent; thus the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA). There is, however, many who believe that politics had a lot more to do with what may be “restructuring” the NFIP program, which dates back to when a time line was set – December 31, 1974, which designated properties built before that date were “grandfathered” into the program and exempted from rules promulgated thereafter requiring new construction standards and building heights.
Many of the “pre-existing” properties were built in low lying locations and directly along waterfronts. Many of these are commercial as well as residential properties.
Following Hurricane Katrina (2004) there was a “discussion” that such properties should be reconsidered. New Orleans, LA was hardest hit while other areas, including the “Gold Coast” of Mississippi, were devastated – the area with several casino operations and vacation homes.
Former Democrat Bill Clinton’s FEMA Director Appointee, James Lee Witt, who had a less than stellar performance with his Washington, DC tenure was appointed to coordinate Katrina recovery in the New Orleans area by former Democrat Louisiana Governor Kathleen Blanco. Even though his work during Hurricane Andrew in 1992 at FEMA was a disaster for Florida recovery he was nonetheless elevated to management of the Katrina disaster. There too he failed miserably and indeed was one of the factors in Blanco’s loss of her seat and in part the loss by Louisiana Senator Mary Landrieu who supported his appointment.
One of the “restructuring” concepts Witt tried to implement as head of FEMA was to REQUIRE all properties that had collected flood claim settlement monies, which totaled over the entire flood insurance periods over fifty percent of the “value” of the building, would have to raise the structure(s) to comply with current height requirements. If they did not comply within a given period of time, (which was not at the time specified), they would be denied inclusion in the NFIP insurance program, i.e. no more flood insurance would be written on those properties by NFIP. Note that the National Flood Insurance Program instituted as an Act of the United States Congress (National Flood Insurance Act of 1968) is not “insurance” in the normal sense. Those who purchase “flood insurance” are actually included in this Federal Insuring Program and that program is subject only to Federal Law (Act of Congress or FEMA) NFIP regulation. Thus state laws or provisions do not have any effect or any legal standing in the “Program”. Thus all regulations are under the authority of FEMA and as such, by its Director, which is an appointment by the President of the United States and serves “at his pleasure”. Thus, Mr. Witt, the Clinton appointee had the power to enact this change. However, a bipartisan uproar made his concept a clear impossible reality due to the politics. The number of commercial properties along waterfront areas and coastal areas were more than half of the properties in the program. Commercial properties from Maine to Texas and the riverfront properties in the other states touched nearly every Senatorial District and many Congressional Districts. The prospects of the commercial properties who by practical means could not make the financial or, in many cases, physical changes to raise their structures to compliant new heights (Marinas, Restaurants, Petroleum Refineries, Factories, High Rise Condo Buildings and more) caused a national wide objection. President Clinton soon understood that Mr. Witt had a “witless” idea and made sure it was buried. The bipartisan objection was nearly unanimous in Congress. Eventually Mr. Witt went back to private life. He tried a return to public life in 2014 by running for Congress. He lost. Thus the politics, in this case, were evaluated by its practicality. Since the federal taxes collected along the coastal properties are nearly half of all taxes on income and other federal taxation – the practical consideration was that these properties were, in part, the lifeblood of the American tax base.
In any case Witt was tapped by Blanco. His performance in the Katrina catastrophe was as ill conceived and disastrous as during his FEMA tenure.
However, now that Barack Obama is in his last 12 months he and his administration fell unconstrained to implement the “political” Obama vision. As such the reckoning (recovery) day of the FEMA debt seems to have come. Instead of “subsidizing” the “post Firm” (pre December 31, 1974) structures the administration sees both commercial properties and vacation homes (non-primary homes) as fair game to bludgeon with huge increases in flood insurance premiums. Indeed the first try was the wide classification of insured communities into the “V” zone (in waterfront areas). These “velocity” zones would see increases in flood insurance by outrageous amounts within the next policy period. The legislation – the Biggert-Waters Act of 2012 would raise premiums on a simple one family home from a few thousand dollars to over thirty thousand ($30,000) a year. Congress backed that down to a maximum twelve percent (12%) insurance premium “cap” to blunt the 2012 Act.
Now the HFIAA comes roaring in with the brunt of the increases on commercial property and non-primary (secondary), i.e. vacation homes.
Notably the ultra liberal Obama administration sees the commercial properties as fair game. Ostensibly the concept is if these property owners are “rich” enough to own waterfront commercial businesses they will pay to offset the cost of the debt and ongoing administration of the Flood Program. Also those who can afford a vacation (secondary) home are also the wealthy. They too have to bear the burden to pay for others “less fortunate” who live in a high risk zone.
The idea comports with the Obama “wealth redistribution”, his “socialist” political philosophy that has driven this administration for the last 7 years.
The failure to understand that the enormous commerce these properties generate and the federal income taxes they pay is a badly flawed political theory as the Witt idea that was discarded by Democrats and Republicans alike.
Imposing new “surcharges” to built “surplus” coffers for FEMA are also included in HFIAA as well as other assessments to build financial “reserves” in case of “future” catastrophes.
In the past Congress has made singular and one-time appropriations for such events when funds were needed to deal with natural catastrophes. This “as needed” idea worked after Hurricane Hugo in 1989 and subsequent catastrophes. However, those who seek to “expand government” and find an ongoing bureaucracy based structure, which is self sufficient and resistive of Congressional scrutiny – this way of building the agency is exactly how “big government” works.
Compare the billions in subsidy given to private companies for the “green” initiative and the $24 billion debt FEMA carries is put into a different perspective. The Obama Administration spent billions of taxpayer money on failed attempts at increasing the US Solar Energy industry when the failed to properly vett hair-brained schemes and projects doomed to failure from the start. Solyndra was just one of many. Alternate fuels, wind energy, bio-fuel and more come to mind. Instead of solidifying the FEMA financial issue and dealing with it this Administration went off on pie-in-the-sky peccadilloes. Since the properties in the NFIP program are both “at risk” yet produce enormous federal tax income, logic dictates that those high tax income producers be a first priority. Not so with Obama and his political views.
Indeed many other industries are getting billions in subsidy, including agriculture where there are a disproportionate number of mega farm corporations that wield political power getting the bid federal money while small farmers are being forced out. For years many were paid NOT to produce products while waterfront properties kept on filling government tax coffers.
These commercial properties, many in the warmer climates, are seasonal businesses and are also under severe duress due to implementation of the Affordable Care Act (Obamacare). Not only do they have to deal with the new increases in flood premiums but, at the same time, the huge increases in employee healthcare insurance costs brought on by Obamacare. Many local New Jersey and New York communities too were hard hit by Sandy. In some cases they are seeking tax increases since there has been little help from the Federal Government. Indeed Governor Chris Christie had complained abut the so called billions in Federal Aid being sent only in a trickle and only after expense upon expense was already paid. When Christie came to office he found nearly an $8 billion shortfall so the state was in near financial collapse at that time. Then Hurricane Sandy hit just another setback. In the meanwhile the Atlantic City Casino Industry came upon bad times and the formerly lucrative casino taxation going to Trenton all but dried up. Indeed Atlantic City is on financial “life support”. Now the businesses that do survive will see tax increases from local government as well as the new flood insurance costs. Obviously they will get no federal tax breaks.
Thus the State of New Jersey as well as other states will be forced to be part of the political problem emanating from a mismanaged Federal Administration in Washington, DC.
To add insult to injury there is now an ongoing Federal probe into the actions of the engineering firms approved by FEMA and engaged and supervised by NFIP in the Hurricane Sandy flood claims situation. Nearly 140,000 claims still linger since the 2012 event. Now fraud has been uncovered. There is clear evidence that many engineering reports were either altered to deny claims or written to deny claims when there were good reasons to accept the claims. There has been concern by Senators Menendez and Booker of New Jersey and Senators Schumer and Gildebrandt of New York that a massive fraud involving FEMA and NFIP elements that were uncovered are pervasive and criminal in nature. A moratorium on flood claim mediation has been ordered. Thousands of suits against flood insurance carriers have been filed.
These are the very property owners who now will receive the huge flood insurance premium increases as well. Diminishing coastal businesses and commerce causing close downs permanently will have far reaching effects on the federal tax income for the long term. Failing to support these businesses and indeed coastal communities that are the sole basis for tourism income and sustaining these communities can only result in further degradation of over overall economy nationally. Depressing tourism will have the effect of crippling the industry. We see how industries under duress have caused the “rust belt” cities like Detroit fall into financial chaos. Do we need to begin that spiral in coastal communities by ignoring our single most important resource tourism. It seems the victims are being punished and the trail leads back directly to Washington, DC.
ING not Proser-ING
The Dutch Bank ING Group went through years on records in the United States as a “stable company”. Insurance watchdog warned over two years ago that there were huge flaws in the way they were reported particularly their accounting practices. Their Insurance sector ING Fatam was rated by most insurance rating services as good. Again there was clear evidence of false accounting and that the company if held to American accounting standards would be considered on the verge of bankruptcy. Indeed it was ING management restructuring and sale off of multi-units, downsizing and a huge bail out from the Dutch government avoid a complete financial collapse of the company. Why didn’t U.S. auditors pick this up? We did. Now the global “recession” is blamed. Bull feathers!
This company was on the skids years before the European financial crisis. It hid behind false recording of its finances yet they got a pass and many investors got hurt – many in the U.S.A. Now ING has changed the names of some U.S. sectors and touts its “recovery” from the financial abyss. The new name, Tangerine, involves the selloff to Scotia Bank of Canada for part of ING Holdings. Trust a bear once it’s their fault, trust a bear twice it’s YOUR fault. The leopard has not changed its spots it merely has cloaked those spots in murky reports. The company has now changed it US name but that sector is actually no longer the ING Group.
While we are on the subject of bad insurers time to pole the British again. Lloyds of London was hit hard by Hurricane Sandy in 2012. The real evidence came in the payouts in 2013 and 2014. However there are huge numbers of underpaid claims still lingering and many, many law suits which will eventually cost Lloyds billions. Putting off payments by faux demands or simply stall tactics is a notable Lloyds Trademark. Lloyds has had two virtual bankruptcies in the past. The third may be looming. (Perhaps insolvency is more accurate.)
The NFIP (National Flood Insurance Program) Scandal
There is clear evidence that many engineering firms hired by NFIP to “investigate” Hurricane Sandy flood claims actually were falsifying their reports in order to deny payment. CBS TV show 20/20 broke the story nationwide when a U.S. Forensic Engineer being interviewed by TV’s Leslie Stahl stated most of this reports were re-written without his knowledge or consent. In fact of the 100 or so reports over 90 were rewritten so as to change the report which would have verified coverage but instead denied additional damages. The others not changed were essentially the denials verified. Now FEMA and NFIP had put a moratorium on “mediations” of nearly 140,000 claims. NJ U.S. Senators Menendez and Booker and NY U.S. Senators Schumer and Gillibrand are heading the change for a full investigation which could lead to the top. Indeed the chief administrator of NFIP quit weeks before the ex pose went public. Now there is a move by NFIP to blame the “write your own” insurers for the wrongdoing. The problem is NFIP could order the engagement of engineers on any claim and then only firms approved by FEMA (Federal Emergency Management Agency). Rumor has it a criminal investigation is already underway. Also that the entire system of flood insurance and claims handling will undergo a complete change.
Moreover the burden of solving the outstanding 140,000 claims is also in chaos. No longer will Flood Certified Adjusters who handled any Hurricane Sandy claims can be used to re-inspect. They are, of course, potential defendants if a (likely) claim action sent in filed the catastrophes in New Jersey – the “wind” event of February 15th and 16th was listed as a Natural Catastrophe as # 63 CAT and the Freeze of February 17th and 18th as CAT #64. Insurance had to bring in adjusters from many states and most of the claims are not completed.
Thus there are very few adjusters available surely not enough to service those 140,000 cases in New Jersey alone. While over 2,200 lawsuits were filed in New Jersey there are a big number of cases in New York as well Staten Island, parts of Brooklyn and Long Island were hard hit as well. They also were struck by the winter storms as well.
There is also a “side show” about to begin, Senator Menendez a critic of Obama’s Cuba policy and also at dealings with Iran have netted him the ire of Obama. He was indicted on charges stemming from dealing with a Florida doctor/friend. The matter had, for all purposes, been thought to be over. But when Menedez came out against Obama’s Cuba deal and railed against his unilateral dealing with Iran – essentially shutting out the Senate and Congress (Menendez is member of Foreign Relations Committee) the matter took on new and urgent life by Eric Holden (who retired).
Senate Minority Leader Reid – Soon Out
Now that Harry Reed is a lame duck and Senator Chuck Schumer of New York seems a shoo – in for the post the Hurricane Sandy matters in both New Jersey and New York are even more complex from a political stand point. Given too that the 2016 Presidential race is on the edge of high gear no doubt Hillary and Bill Clinton are trying to figure out where this is all going before she runs headlong into yet another scandal like Benghazi or Email-gate or the donations from unfriendly foreign governments to the Clinton’s Foundations.
Scottsdale – Post Mortem
The recent buyout of Scottsdale Insurance Company by Nationwide Insurance Company rings a death knell for the sturdy respected Arizona based company. Swallowed whole by the “Nationwide Philosophy” the far and balanced practices of the former Scottsdale management has been dashed to pieces and the ominous “take no prisoners” and “do not pay” attitude of the behemoth Nationwide has the old Scottsdale brand in oblivion. While there is an irregular pattern to how claims are administered by Nationwide in their overall plan it is usually suspicious of insureds and seeks no fair avenue on claims but engages surrogates even as “controlled” engineering forms to hide behind denials in any claim where they can assert a denial. This is a far cry from the more liberal Scottsdale philosophy of using seasoned insurance claims field people to determine coverage that outsourcing to erst while “forensic” engineering forms whose goal is to prove their forms can find ways for insurers to weasel out of paying claims better than competing engineering forms.
The Scottsdale story is similar to the Harleysville Insurance Company take over a few years ago. Harleysville was a great smaller Pennsylvania based company, very profitable for years a prime takeover prospect for a large national company. As soon as it was known that a take over was planned some employees of that small company got nervous about their jobs. They were told
“no changes” only ownership – Bull Feathers! Within a year and a half the staff was gone and the fair and balanced claims procedure was turned into a nightmare for policy holders.
Corruption in FEMA
A huge scandal has erupted with the National Flood Insurance Program over this very scenario in the 2012 Hurricane Sandy claims in New Jersey and New York. Bogus reports by engineering firms were actually re-written by managers in their engineering firms to turn a covered loss into a denial. CBS TV’s 20/20 ran a story with graphic and irrefutable evidence which has now rocked the Federal Emergency Management Agency (FEMA) and NFIP.
The U.S. Senate may be forming an investigative panel to determine how this could happen. Mediation and the flood cases been postponed. Some 140,000 cases are likely to be subject of review for non-payment or under payment. Nearly all stem from this likely “conspiracy” of engineering firms being a party to an overall “denial” or “reduction of the claim” schemes that are rumored to reach the highest levels of power in politics in Washington D.C.
So Nationwide follows the trend. They are not alone. Allstate has had a horrible reputation is some sectors of being extremely resistant to paying claims fairly.
USAA Ain’t so Fair, Nor Lloyds Either
A bizarre configuration is USAA Insurance Company. While they tout themselves in ads as the heartfelt protectors of the veterans the truth is far from the image. While the auto division is one of the best operated auto claims divisions in the U.S. the property division is like an entirely different company. The USAA property division handles homeowners claims in mismanaged, amateurish and disorganized. They have few staff field people and assigned parts of claims to different supervisors. For example one homeowner freeze up claim can have a building claims supervisor, contents supervisor and another supervisor for living expense or rental loss. Then these supervisors hire independent adjusters who in turn have independent technical loss assessors separately for each portion of claim. This dysfunctional conglomerate then point fingers at each other when the wheels fell the claim handling and chaos issues. As it does all try to cover for themselves. And who is left holding the bag? You guessed it, the homeowner. Claimants who frustrated for months, see no end in sight. USAA is one of the worse property insurers handling property claims. They even rival Lloyds who infamous claim philosophy is deny a claim until you reach the court house steps. Lloyd of London even frustrates their own independent claims people delaying for months on end.
Some bright spots are AIG and affiliates. Narragansett is slow but fair. Lexington is abivalent but better that some. Proformance (Not the car insurer Performance) is also fair. Chubb had its good points as well but recently they too were bought out by ACE, a foreign owned company. Thus soon a new business model will change Chubb.
Look for huge change in NFIP (National Flood Insurance Program). Also rates have skyrocketed and are headed even higher. There is a distinct attack on vacation home owners (non-primary homes) and seasonal shore businesses. They will feel the worse of the increases.