Monday, December 5, 2016
Pallone Introduces Legislation to Cap Flood Insurance Profits & Hold FEMA Accountable
FOR IMMEDIATE RELEASE
December 5, 2016
Long Branch, NJ – Today Congressman Frank Pallone, Jr. (NJ-06) introduced the Flood Insurance Reimbursement Standards Transparency (FIRST) Cap Profits Act, which would require increased oversight and transparency of the National Flood Insurance Program (NFIP) by the Federal Emergency Management Agency (FEMA) and cap the profits of private companies providing flood insurance at 10%. Congressmen Bill Pascrell (NJ-09) and Donald M. Payne, Jr. (NJ-10) joined as original cosponsors of the legislation.
Congressman Pallone began drafting the legislation after hearing from New Jersey residents that were treated unfairly by FEMA, private insurance companies or both in the aftermath of Superstorm Sandy. After discussing the proposed legislation with constituents at an event in Highlands in October, the Congressman added a provision to require that private flood insurance companies cover the legal fees of plaintiffs if the company is found to have committed fraud.
A 2009 GAO report found that profits for flood insurers averaged 16.5%, while a more recent study found profits closer to 30%. In the wake of Superstorm Sandy and other recent disasters, FEMA and NFIP have faced accusations of incompetence and fraud, which has led to thousands of New Jersey families being overcharged or without the payments they rightly deserve.
“It is shameful that private insurance companies have profited from Sandy while failing to meet their basic obligations under the NFIP. It is inexcusable that FEMA has failed to provide proper oversight of those entities - especially when Congress has already empowered and required the agency to do so,” said Pallone. “FEMA has a responsibility to ensure that policyholders are treated fairly and charged a fair market price for the service they purchase, and my bill will take an important step in that direction. I will also be using the reauthorization of the National Flood Insurance Program next year as an opportunity to push for more accountability from FEMA and insurance companies.”
Earlier this year, the Frontline documentary “The Business of Disaster,” examined issues with flood insurance after Superstorm Sandy. During the documentary, Roy Wright, Deputy Associate Administrator for Insurance and Mitigation, was asked if he knew how much profit private insurance companies servicing NFIP were making. He responded, “I’ve never looked at the book of business to understand their profits.”
Frontline did its own analysis and concluded that private insurers made more than $400 million in profits from FEMA in the year that Hurricane Sandy devastated the Atlantic coast – its highest profit in the 4-year period from 2011 to 2014. Between 2011 and 2014, industry-wide profits averaged $325 million a year –nearly 30% of the revenues the companies receive from FEMA. At the same time, many of those insurers were underpaying or outright denying legitimate flood insurance claims.
The FIRST Cap Profits Act would rectify this problem by forcing FEMA to review the finances of these companies, something it was required to do by the Biggert-Waters Flood Insurance Act of 2012. Additionally, by capping profits at 10%, the legislation would ensure that taxpayer dollars are going towards policyholders, while leaving room for these companies to make a profit for administering the program.
Congressman Pallone has been a leader in demanding transparency and swift action on behalf of those who have suffered from inefficiencies and documented, widespread fraud perpetrated by private insurance companies in the aftermath of Superstorm Sandy.
In May, Pallone led another bipartisan letter from members of the New Jersey Congressional delegation requesting that FEMA take swift action on behalf of those who have suffered from fraud and for an explanation of why it is taking FEMA so long to process insurance claims from Sandy. Later that month, Pallone met with FEMA officials and stressed that the slow pace of the claims review process was unacceptable, and that FEMA needs to act to ensure that New Jersey policy holders are treated fairly and receive just compensation. In July, Pallone led a bipartisan letter asking that FEMA fulfill its legal obligation to provide oversight of the private insurance companies that participate in the NFIP.