Senate Banking Committee Report: No Systemic NFIP Underpayments for Sandy Claims

The Senate Banking Committee issued a report on the National Flood Insurance Program (NFIP) finding there were no structural flaws in the program that led to systemic underpaying of flood claims after Superstorm Sandy.

“Despite widespread concerns, it does not appear that systematic incentives exist for any participant in the program to underpay on claims,” the report concludes. “Nor does there presently exist evidence of any such pattern of underpayment.”

The study was undertaken amid allegations of fraud and routine underpayments by the NFIP and some Write-Your-Own insurers that led to reforms at the NFIP and the re-opening of Sandy flood claims.

The report, though, while acknowledging that it can’t discount misconduct or even outright fraud on behalf of some adjusters and engineers in connection with some Sandy claims, “we found no evidence to support the theory that engineers have a systematic incentive to downplay flood damage.”

The report also says data it analyzed indicates overpayments are more common than underpayments. “Theories of ‘systematic underpayment’ are inconsistent with the actual data produced by FEMA auditing. We found no persuasive evidence to support the existence either of any general incentive to underpay policyholders or of any practice of doing so.”

It also claims the WYO companies participating in the NFIP and adjusters actually benefit financially when claim payments are higher, rather than suppressed.

Sen. Charles Schumer, D-N.Y., a vocal critic of how the NFIP and insurers have handled flood claims, rejected the report’s findings. Newsday quotes Schumer as saying the report relied on questionable data and ignored evidence of widespread underpayments from more than 2,000 lawsuits filed in federal court after Sandy.

A spokesman for Sen. Kirsten Gillibrand, D-N.Y., says in the Newsday story, “Based on the evidence presented in federal court, any study that concludes the National Flood Insurance Program did not systematically underpay superstorm Sandy victims is deeply flawed and suspect.”