Two government agencies investigating the handling of floodclaims in the aftermath of the 2005 storm season offered sterncriticism of both the insurance industry and the Federal EmergencyManagement Agency at a Capitol Hill hearing last week, but neitheroffered hard evidence of wrongdoing on the industry's part.

The main concern at a joint hearing of the Oversight andInvestigations Subcommittees of the House Financial ServicesCommittee and Homeland Security Committee was that insurersoperating under the Write-Your-Own aspect of the National FloodInsurance Program could have pressured adjusters to cite only flooddamages in cases where an actual evaluation might have shownsignificant wind-related damage as well.

Such a scenario would have put the burden of claims unfairly onthe NFIP, and thus on taxpayers.

Witnesses at the hearing–representing the GovernmentAccountability Office and the Inspector General's Office at theDepartment of Homeland Security–said their investigations had beenhampered somewhat by a lack of information in FEMA files andreluctance on the part of insurers to turn over their owninformation.

The Inspector General's Office investigated the issue after arequest by the former Financial Services Committee chair–MikeOxley, R-Ohio–while the mandate for the GAO study was inserted lastyear in Homeland Security appropriations legislation by Sen. TrentLott, R-Miss.

As of now, neither study has found any wrongdoing on theindustry's part, although no final conclusions have beenreached.

“Although nothing came to our attention during our limitedreview to indicate that WYOs attributed wind damage to flooding,”said Matt Jadacki, deputy inspector general for disaster assistanceoversight at the Department of Homeland Security, “we cannot ruleout the possibility that it occurred.”

Much of the problem, said Mr. Jadacki, was that FEMA's files onflood claims generally provided information on the flood aspects ofa claim but not the corroborating information on any wind damagesthat may have been determined. “When we finished our work” with theNFIP's files, he said, “it just wasn't there.”

While FEMA did conduct audits of adjudicated claims, Mr. Jadackisaid the inspector general's investigation found that these weretypically more administrative in nature and would not havechallenged the original assessment of wind-versus-water damage. “Ibelieve they used a 'checklist' approach,” he said.

Orice Williams, GAO's director of financial markets andcommunity investment, said her agency had a similar experience,adding that FEMA required any information provided to the GAO beapproved first by FEMA officials.

GAO spoke with the National Association of InsuranceCommissioners and with some individual state insurancecommissioners, but they were unable to provide information that wasspecific enough to gauge against the NFIP claims information.

Insurance companies, she added, “were generally unwilling tomeet with us.”

Mr. Jadacki said his office had spoken with “about 15 companies”and was supposed to have received information recently regardingsome of the claims information. He added he had not yet seen theinformation, nor knew if it had been received, due to the mailinspection process at the department.

In speaking at the hearing, some members sought to ensure thatfindings that abuses may have occurred should not be taken as proofof guilt.

“If this is true, it is an outrage,” said Rep. Gary Miller,R-Calif. However, he added, “there is a difference between thepotential for wrongdoing and the finding of actual wrongdoing,” andadvised that the committee take a “cautious” track.

Others had a different attitude.

Rep. Gene Taylor, R-Miss.–who appeared at the hearing as a guestof the committees because he does not serve on either panel, andwho also sat in on a similar hearing earlier in the day focused onNFIP reform legislation and flood mapping–pointed to accounts offraudulent claims in Mississippi and New Orleans newspapers.

He also suggested that the assignment of claims to the floodprogram may have been the result of comments made to industryleaders by David Maurstad, who oversees the NFIP for FEMA.

At both hearings, Rep. Taylor asked for subpoenas to be issuedfor information regarding comments made by Mr. Maurstad at ameeting with members of the insurance industry on Sept. 7, 2005, inwhich he referenced prior conference calls with the heads of someinsurance companies.

In the weeks following that meeting, FEMA put out guidance forinsurers that stated storm-surge flooding would likely be the causeof much of the damage stemming from Katrina. “The door was openedwhen this guidance came out,” Mr. Jadacki said.

Rep. Christopher Carney, D-Pa., who chairs the Homeland Securitysubcommittee, said he had directed his staff to look further intothat meeting as well as Mr. Maurstad's comments.

The Financial Services subcommittee chairman, Rep. Mel Watt,D-N.C., told Rep. Taylor that his committee had requested frominsurers information regarding their Katrina-related claims, andthat carriers were told to comply by June 14. “A number ofinsurance companies have made some sounds about the possibilitythat they would object to providing the subcommittee with some ofthat information,” he said.

At the earlier hearing, Fidelity National Insurance Company'spresident and chief executive officer, Mark Davey, said his companyhas a solution for what Rep. Taylor had described as a “naturalconflict of interest” in having a WYO send out an adjuster toevaluate both the wind and water claims.

Mr. Davey, appearing on behalf of the Property and CasualtyInsurers Association of America, explained that Fidelity runs itsflood insurance and homeowners insurance as two entirely separatebusinesses.

“It's two separate claims files, with two separate adjusters andno communication between them,” he said, adding that thehomeowners' business is run out of Fidelity's Omaha office, whileflood insurance operations are based in Florida.

Another issue raised at the earlier hearing was the impact ofpaying claims from the 2005 storm season on the NFIP. The programhas had to borrow roughly $23 billion from the federal government,and paying only interest on those loans each year would account foralmost half of the money the NFIP takes in annually.

Congress may have to consider the money borrowed by FEMA for theflood program as spent, suggested Thomas Minkler, president of theNew Hampshire-based Clark-Mortenson Agency, appearing on behalf ofthe Independent Insurance Agents and Brokers of America–a positionechoed by other witnesses at the hearing.

“The long-term survival of the program may require Congress toconsider eliminating [NFIP's] debt and the resulting interestpayments,” he added.