The Government Accountability Office (GAO) has issued a report that found that private insurers processing claims for the National Flood Insurance Program (NFIP) creates a conflict of interest and urged FEMA, which runs the program, to be wary of paying for wind damage that should be covered by private insurers.

The GAO recommends in the report released January 30 that Congress give the Federal Emergency Management Agency (FEMA) greater authority to scrutinize private insurers’ handling of federal flood claims. According to the GAO, FEMA should have the ability to access detailed reports of how Write-Your-Own insurance companies went about assessing how much loss storm-damaged homes sustained from wind and flooding.

The report also recommends that Congress give FEMA the authority to obtain wind claim files from insurers so that the flood program can verify that payments are reasonable. The GAO report was spurred by allegations last year that some private insurance companies were billing the flood program for damage that they should have covered.

FEMA officials responded to the GAO report saying they don’t need access to wind claims files to adequately oversee the program, and that there has been no proof that claims were handled inappropriately. Cliston Brown, a spokesman for the Property Casualty Insurers Association of America, concurred with FEMA, adding that state insurance commissioners already have access to wind and flood damage claim documents and that as long as adjusters follow claims handling rules there is no conflict of interest.

GAO Warns of Insurer Bias on Flood Claims (New Orleans Times Picayune 1/31/08)

Full Text of GAO Report (PDF file, GAO 1/30/08)

February 6, 2008