A View From The Press Box

Most claims operations absolutely wall-off conflicting interests in liability cases all the time. No reason why that won't work in property as well.

Another answer is a consortium of all U.S. insurers should pool resources on a pro-rata basis and take over the flawed National Flood Insurance Program totally.

Then, the "flood" peril as redefined and underwritten can be pooled on a national scale by insurers, and not the poor taxpayer.

Pool administration (and computers) can be in one central location--say, ironically, in a concrete bunker on a Caribbean island, where there will be lots and lots of winter meetings.

Would it not be a whole lot simpler if the private sector were to offer flood coverage as part of the homeowners package, with specific limitations--thus ensuring that all avenues of coverage would lead to the insured?

Surely the industry could rate such an exposure and take over from the Feds. Kinda like one-stop shopping.

The adjuster, without fear of ticking anyone off, could then simply apportion the loss to the respective policy coverage.

Too simple ??????

SAM RESPONDS:

I neglected to bring up that alternative--the idea of simply writing all-perils homeowners coverage again. However, the resistence I have encountered to this notion in the past is that if insurers were to take on flood exposures once more, would the respective state regulators allow carriers to charge actuarially-sound rates for all those living along the coasts or in flood zones?

Isn't that one of the reasons the coverages were split off, with the Feds left with the flood "stepchild," in the first place?

MARC RESPONDS:

A monetary contribution from the feds to offset rating issues based on an exposure scale, given directly to carriers based on sound actuarial practice, could contribute to the viability of an all-risk policy, thus eliminating coverage issues.

Sam, you do miss a couple of points:

1. The WYO program is much more expensive than the direct program, about twice as costly. Since one way to remove the conflict would be going direct, the direct option would also save taxpayers money.

2. Even with two adjusters, the conflict remains. Who settles any gray areas? A WYO insurer executive with a conflict. It would be harder to rip off the system, but the conflict would still be there.

SAM RESPONDS:

Bob, I'm not quite clear how the direct system would be cheaper....Would the federal government hire and train its own dedicated force of adjusters to handle NFIP claims, or would they outsource to independent adjusting firms working for NFIP?

BOB HUNTER RESPONDS:

Sometime we can talk about it in depth, but I did turn the NFIP into a direct program when I was Federal Insurance Administrator.

The system was a competitively-bid system, allowing anyone capable of running the NFIP to bid, including insurers...The cost is low because there is competition, that does not exist in WYO. They just do a deal with the government that sets fees sufficient to make the least efficient WYO insurer prosper. The fees are excessive.

Do we not learn anything from the history of the "single adjuster" concept in claims handling?

This concept puts the customer FIRST, so they are not the middle man between two adjusters who both attribute who pays what differently.

When the same insured is handled by multiple adjusters, who may even be using two different software programs with different unit costs, it further makes it difficult to arrive at an agreed price with a contractor.

These are just a FEW of the reasons one adjuster should be handling the one loss for the insured.

The committee meetings have also been discussing the fact the flood auditors did not have access to the carrier wind assessments.

Am I missing something here? We have always been told at the carrier level that adjusters cannot share file information, such as claim history prior files, within the same company, such as auto claims with the fire claim personnel, due to privacy laws that protect consumers.

Why would carriers then be required to share wind assessments with the flood program?

What am I missing here?

It is possible to have very little conflict with an insurer resolution. A Flood Pool--which I suggested in an earlier response to this entry--will redefine the "flood" peril, hopefully to wrap around the standard homeowner policy and reinsurance definition.

The definition will include technical indicators and evidence required to be considered "flood" damage and, if so, in what proportion. That decision is made by an experienced, independent claims adjuster, contracted to and paid by the affected insurers directly, but reporting to the pool.

If there is no definitive evidence of either wind or "flood" being the proximate cause of loss, the pool and insurer will split the loss 50/50. Otherwise, they will split the loss on the basis of the proportion of loss to each peril.

All of this would be done by computer with a powerful program and a tiny staff. Adjusters are precleared for conflict and engaged as needed on a 1099 basis.

This would virtually eliminate confict and, even if there is, the pool and insurers can arbitrate under ARIAS rules and it becomes an accounting transaction.

Plus, costs will be dramatically reduced for obvious reasons.

As Bob Hunter points out, the NFIP was previously operated directly by the Federal Insurance Administration--currently FEMA/Department of Homeland Security. The Write-Your-Own concept was developed to better market the NFIP policies--under the auspices of using the private carriers' marketing resources.

I agree that the WYO program has, in fact, become more "lucrative" for the private companies than for the NFIP (my opinion) in that they (the companies) are paid a portion of the premium (30 percent-plus) PLUS 3.3 percent of the incurred losses (for servicing the claims).

In addition, the adjusting expenses and SAE expenses (engineers, experts, etc) are "pass through" expenses.

However, the WYO companies are held very accountable by the "Arrangement" they sign to participate.

As regards the use of a single adjuster to handle both the wind and water claims, this was encouraged by the NFIP so as to cause less "confusion" on the part of the policyholder and to give the service.

This is a very interesting issue, and there is much to be said.

Reactionary and incremental "patches" to fundamentally flawed systems to do nothing to address the overarching problem, which is that the insurance industry does not take advantage of the law of large numbers and a free market system.

This can only happen through securitization of insurance and an optional federal regulatory system that mandates all-perils policies, with consumer-friendly language that eliminates the ability of insurance companies to obfuscate their claims responsilities.

You suggest (facetiously, I hope) that the government get back into the direct sale and administration of flood insurance.

My reaction? AAARRRRGGGGHHH!

They screwed it up last time through, and I haven't seen any evidence that government programs are becoming efficient.

There has always been the problem of apportioning claims on a covered vs. non-covered basis. Remembering that the insured is entitled to be made whole, it was ALWAYS worked out (okay, so some of them went to suit, but they were the exception).

I believe that the cause of this latest brouhaha is the GROSSLY incorrect interpretation of the "non-concurrent causation clause" (which DOES NOT say what they say it says).

Keep the government out, let the insurance professionals handle it, problem solved!

While very difficult to assess damage on out-of-sight losses--such as slab-only properties--it is relatyively easy to split the damages bewteen wind and flood.

The forms have columns for each and a third column for questionable damage, which is then fairly apportioned between the two lines.

Save for the wave washouts, I don't recall too many losses I saw where it was that hard to identify what peril caused what damage.

I agree with several who have pointed out that our responsibility is, first and foremost, to the insured.

I suggest making NFIP coverage available as an endorsement to the homeowners policy. This would require making some adjustments to NFIP coverage so it better tracks with HO's coverage.

Then, one adjuster handles the full loss which gives OUR INSURED the easiest possible way to deal with their problem.

Now this requires the homeowners insurer to fairly allocate the claim beween the perils. Not always an easy job, as we have seen.

Instead of NFIP having a separate cadre of field adjusters handling cliams, they have in-house experts who examine the claims and the allocations. Any disagreements would be handled by arbitration, behind the scenes, after the insureds are "made whole."

Our clients get one adjuster, one check, and the fastest possible settlement. Isn't that, after all, what we are supposed to be doing?

I have read Sam's entry and reader comments, and I would like to express my opinion about what I have read, so far.

Before the NFIP is dismantled and handed to a consortium of U.S. carriers, let's think this over very carefully.

The reason we have the program in the first place is they didn't want to insure the risk. What indications do we have that they have changed their minds, close to 40 years later?

They--Write Your Own carriers--have a good deal now, so why would they exchange that for a questionable uindertaking?

Also, who would do the mitigation and map issuance work, if we dismantle the program?

Someone said the NFIP is flawed. What massive program is perfect and doesn't have a few flaws, especially a government-run one?

Until a program is stressed, flaws usually aren't noticed or show up.

All the stakeholders involved in this program need to work together to fix the problems that have become apparent and move forward to make the NFIP viable, efficient and beneficial to the taxpayers, who are footing the bill.

Unless the detractors of this program have a foolproof alternative, I suggest they devote their energies to improving the NFIP, rather than trying to implode it.