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Insurers Will Be Found Not Guilty of Fraud in Sandy Payouts, Expert Says

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Insurers will be vindicated of accusations of fraud for rejecting flood damage claims made by Superstorm Sandy victims, an insurance industry expert predicts.

New York’s Attorney General Eric Schneiderman has opened an investigation into accusations against insurers Wright National Flood Insurance Co., units of Travelers Cos. and Hartford Financial Services Group Inc., which contract with the government’s National Flood Insurance Program (NFIP), of rejecting property flood damage claims of Sandy victims based on falsified engineering reports, Bloomberg reported this week.

Called a Write Your Own program (WYO), the Federal Emergency Management Agency (FEMA) allows participating property and casualty insurers to write and service the Standard Flood Insurance Policy in their own names.

Under the WYO program, insurers receive an expense allowance for policies written and claims processed while the federal government retains responsibility for underwriting losses.

The WYO Program operates as part of the NFIP, and is subject to its rules and regulations, according to FEMA, which oversees the flood insurance program.

“I am confident that the attorney general will be satisfied that insurers involved with the Write Your Own program were operating in a manner consistent with NFIP guidelines,” said Robert P. Hartwig, Ph.D., president of the Insurance Information Institute.

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Lawsuits in federal court accuse the insurers of colluding with engineering firms and others to deny or reduce damage payouts based on fraudulent reports. Schneiderman is investigating whether any crimes were committed. According to The Hartford Courant, more than 1,000 lawsuits are involved, alleging that homeowners were underpaid by insurance companies. Attorneys said insurers accepted altered engineering reports in a “peer review” process.

Insurers point out that the property disputes involve only about 1% of all flood claims and that the peer-review process is common practice—a quality control measure to make sure the federal government doesn’t overpay on flood claims.

Regarding the lawsuits that have been filed, Hartwig said, “I am equally confident that the evidence will indicate once again that insurers were operating in a manner consistent with NFIP guidelines.”

He explained that the lawsuits lodged against insurers alleging that certain insurers and firms hired to perform engineering analyses on flood-damaged properties were acting together to reduce or deny claims, “reflect a fundamental  misunderstanding of how the NFIP WYO program works. Engineering firms routinely and appropriately use a peer review process to review work performed. Occasionally, that process leads to additional opinions being reflected in an engineering report, which can thus impact the dollar amount received by claimants. This is part of a routine and necessary quality-control process.”

Hartwig said that this process is “no different than peer review in other technical and scientific disciplines. Using medicine as an example, test results are routinely reviewed by more than one medical professional before a diagnosis and course of treatments are rendered.”

Moreover, he added, insurers and the engineering firms hired are not financially motivated “to pay claimants anything other than a fair and accurate assessment of the losses compensable under the NFIP policy purchased. Insurers that consistently underpay or overpay claims can be removed from the program by the NFIP/FEMA.”

Insurance Industry ‘Disappointed’ by Senate’s Non-Renewal of TRIA

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Last week’s optimism about the possible reauthorization of the Terrorism Risk Insurance Act was replaced by “disappointment” today, as the insurance industry sounded off about the Senate’s failure to pass the House-approved TRIA bill before adjourning. TRIA, the federal insurance backstop that requires insurers to offer terrorism insurance coverage to policyholders, is set to expire on Dec. 31, 2014. More than 60 percent of all U.S. businesses purchase terrorism insurance coverage, according to Marsh USA.

“A major terrorist attack occurring without a TRIA law on the books will be far more disruptive to the U.S. economy than one where TRIA is in place,” Robert Hartwig, Ph.D., president of the Insurance Information Institute and economist said in a statement. “Terrorism insurance policies are going to lapse in 2015, and insurers will be under no obligation to renew them, adversely impacting the construction, energy and real estate industries, among others. For instance, a theatre owner hosting a controversial movie premiere on Christmas Day may have insurance coverage for losses triggered by an act of terrorism but this same business might not have it if a comparable attack were to occur on New Year’s Day.”

The Coalition to Insure Against Terrorism (CIAT) spokesperson Marty DePoy said, “CIAT is incredibly disappointed that the Senate chose to adjourn without reauthorizing the Terrorism Risk Insurance Act, a program that since 9/11 has provided critical stability to the marketplace against another terrorist attack. This is a bipartisan failure; the 113th Congress has let down American workers, American businesses and jeopardized U.S. economic and national security. CIAT urges the new Congress to make TRIA reauthorization its top priority in January and immediately vote to extend the program for the long-term.”

RIMS President Carolyn Snow echoed disappointment. “We are extremely disappointed that Congress failed to pass an extension of TRIA, despite strong bipartisan support.

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The program’s expiration will have many negative repercussions for commercial insurance consumers, the countless organizations they represent and the U.S. economy as a whole.”

She noted that since its inception, “TRIA has stabilized the marketplace by providing adequate capacity at affordable rates. Its expiration will almost certainly cause rates to rise, placing many lending agreements in jeopardy and forcing some organizations to self-insure or simply go without.”

Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), said AIA is “incredibly disappointed,” adding that by letting TRIA lapse, “Congress has failed to protect taxpayers and the economy.”

She said, “Without TRIA in place on Jan. 1, insurers will be forced to assess their exposures. The program’s lapse will significantly jeopardize the terrorism insurance marketplace that currently protects our nation’s economy against major acts of terrorism. We strongly urge the new Congress to take up the House-Senate negotiated TRIA reauthorization package as its first item of business when it returns in January in order to minimize marketplace disruptions.

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Global risk advisor, Willis expressed disappointment as well, noting that its biggest concern is that Clients “will need help in reevaluating their risk exposures according to the changed environment where TRIA is no longer available as a back stop for the insurance market place. Of particular concern is where clients have loan covenants that determine the type and amount of terrorism insurance coverage that is required.”

Mike Becker, executive vice president and chief executive officer of the National Association of Professional Insurance Agents observed, “Disagreement won the day and politics took precedence over protecting the American people. There was overwhelming bipartisan support to renew TRIA, with both parties showing strong leadership to get a compromise deal done in recent weeks. That support was nearly unanimous, with the House approving the TRIA renewal deal 417-7 last week, and the Senate having already passed a similar version 93-4 last July.”

Snow concluded, “RIMS and many other organizations have been pushing Congress to pass an extension for the past two years but Congress senselessly ignored those concerns and waited until the very last moment. This delay has ultimately led to the worst possible outcome.”

Napa Quake Economic Loss Estimates at $1 Billion

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A state of emergency was declared in California yesterday by Gov.

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Edmund G. Brown due to the effects of a 6.1 magnitude earthquake that rocked the Napa Valley area in northern California. The U.S. Geological Survey estimates that economic losses from the quake could top $1 billion and said there is a 54% likelihood of another large quake, magnitude 5 or higher, within the next week.

As of 4:15 p.m. Sunday, six aftershocks had been reported, four centered near Napa, ranging 2.5 to 3.6 magnitude. Two others, a 2.8 and a 2.6 were reported near American Canyon, according to the USGS.

The Napa quake is the largest in the Bay Area since the 1989 Loma Prieta quake, which was magnitude 6.9. That quake resulted in $1.8 billion in insured claims (in 2013 dollars) being paid to policyholders, said Robert Hartwig, Ph.D., president of the Insurance Information Institute.

In the Napa region, widespread damage has been reported to infrastructure, including roads and utilities and public buildings such as the Napa Post Office, the county’s administration building and numerous homes. The City of Napa reported that as of Sunday afternoon 120 patients had been treated or are being treated. Three patients—two adults and one child—suffered critical injuries, Gov.

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Brown’s office reported., adding that power outages also occurred, affecting 69,000 people across the region.

The costliest earthquake in United States history, was the Northridge Quake, with insured losses totaling $24.1 billion (in 2013 dollars). The U.S. has about 20,000 earthquakes annually, mostly small, and 42 states are at risk of quakes, according to the U.S. Geological Survey.

Despite the known high potential for earthquakes and resulting damages in the state, however, only about 12% of California homeowners purchase earthquake coverage, the I.I.I. said.

Of concern are business interruption (BI) losses, as the Napa region is a popular tourist destination. Many businesses that attract visitors, including wineries and restaurants, have sustained damage, both non-structural and structural, according to EQECAT.

According to the I.I.I.:

Earthquakes in the United States are not covered under standard homeowners or business insurance policies. Coverage is usually available for earthquake damage in the form of an endorsement to a home or business insurance policy. However, insurers that don’t sell earthquake insurance may still be impacted by these catastrophes due to losses from fire following a quake.

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These losses could involve claims for business interruption and additional living expenses as well. Cars and other vehicles are covered for earthquake damage under the comprehensive part of the auto insurance policy.