Was Noah Covered?

Insurers–eager to grasp at any straw that might pull them out of the harsh glare of public scrutiny over their handling of Hurricane Katrina claims–were relieved that a Department of Homeland Security report uncovered “no evidence” they had improperly shifted wind-damage claims to the federal flood insurance program.

Unfortunately–for both the industry and Congress–the report is worthless.

The “interim” report makes painfully clear the Feds have no clue whether claims with both wind- and water-related elements were settled fairly, or whether anyone will ever know for sure. That means Congress will be flying blind while attempting to reform the National Flood Insurance Program this fall.

A final DHS report will be issued early next year, but by then it might be too late to make a difference.

In any case, the way DHS made it sound, even if the department had another decade to complete its survey, it might never come to a final verdict on whether insurers were dumping claims onto Uncle Sam. Indeed, the report complained, oversight by the Federal Emergency Management Agency, a unit of DHS, is “limited.”

“FEMA did not maintain documentation indicating the total damage to a structure and how much was attributable to flood and wind, nor is it required by the NFIP,” noted the report.

The bottom line (for now, at least) is that “although nothing came to our attention during our limited review to indicate [private carriers] attributed wind damage to flooding, we cannot rule out the possibility that it occurred,” the report concluded.

So, now what? This is far from an academic debate, since Congress is considering adding a wind-damage option to the flood program.

Some in the industry chose to read the report with rose-colored glasses, but the only clear-eyed view I've heard expressed came from Pat Borowski, senior vice president at the National Association of Professional Insurance Agents, who said its conclusions “can best be summed up as: 'On the one hand this, on the other hand that, and in the final analysis, it depends.'”

“We believe that it is best to place this interim report on a shelf, not act on it, and wait until a final report is completed,” she concluded. Words of wisdom, for sure.

Certainly, this half-baked report won't deter the industry's critics in Congress from coming at insurers with full force.

As our own Dave Postal reported, Brian Martin, an aide to Rep. Gene Taylor, D-Miss.–who has been very critical of insurer claim-handling following Katrina, and who sued over his own Katrina claim–said that from press reports, “we know insurers shifted liabilities to NFIP. The evidence is there in dozens of cases that have been reported…”

If insurers did indeed claim the benefit of the doubt in their favor and dump the burden of proof for wind damage on consumers, he added, “then they could have shifted billions of dollars onto taxpayers and policyholders.”

Plaintiff lawyers also sent another calling card, releasing a report on Katrina's second anniversary–the title of which says it all: “Pattern of Greed 2007: How Insurance Companies Put Profits over Policyholders” in settling claims.

Robert P. Hartwig, president of the Insurance Information Institute, was quick to dismiss the report as “a great piece of fiction,” calling the notion that insurers are greedy “absurd,” but the industry's critics are bound to have a field day.

Insurers are in for a long, brutal battle with Congress over flood coverage, and perhaps wind as well. The question is, to what end?