For First Time Ever, Schumer Urges FEMA to Eliminate NFIP “Write Your Own” Insurance Model Entirely—Responsible For Confusion & Disappointing Results in NY; Schumer Proposal Will Allow Homeowners to Bring Claims Directly to Feds in Push for Justified Flood Insurance Payouts 

Schumer Says That Dozens Upon Dozens Of Private Companies Are Writing, Selling & Servicing Flood Insurance With Poor Track Record & Lackluster FEMA Oversight; After a Long Battle, New York Homeowners Victimized By Sandy Are Simply Not Getting What They Deserve From Flood Insurance Providers Or The Policies They Pay For 

Schumer: ‘WYO’ Model Must Go  

For the first time ever, U.S. Senator Charles E. Schumer today urged the Federal Emergency Management Agency (FEMA) to scrap the decades-old Write-Your-Own (WYO) insurance model from the National Flood Insurance Program (NFIP) and move forward to overhaul the process entirely so that flood insurance policyholders in New York and across the country are benefited in the future. The WYO model has been in place since 1983 and allows participating insurance companies to write and service policies in their own names. There are currently over 80 different companies that sell policies. While the WYOs are subject to NFIP’s rules and regulations, Schumer explained that often times the companies are servicing flood insurance claims with the same profit-driven mentality as they would have for their other lines of business, and as a result unfairly reducing payments to homeowners. Specifically, Schumer pointed to the months-long investigation aired by ‘60 Minutes’ which brought to light evidence that private engineering companies altered engineering reports so as to not fully reflect the true impact and damage caused by Superstorm Sandy to New York homes, leading to the unjust denial or underpayment of flood insurance claims. These engineering firms were contracted by WYO flood insurance companies. Schumer today said that the widespread fraud regarding legitimate flood insurance claims handled by WYO insurance companies following Superstorm Sandy highlights major flaws with the WYO program. In his letter to FEMA, Schumer today called to eliminate the WYO flood insurance model entirely. Schumer said that FEMA does not need to wait for Congressional action in order to make these changes.

Schumer said," Even with a system like NFIP flood insurance --- paid for you by the taxpayer --- the bottom line is that the standard M.O. of 'write your owns' is still insurance company 101: deny-deny-deny and lowball the policy holder, rather than a victim-centered system focused on promptly paying devastated disaster victims so they can get back in their homes and resume normal lives. The only way to change this unacceptable culture is to scrap it."

“Being that the WYO insurance model is so complicated and made up of over 80 different providers, it’s no surprise that we’ve seen so many problems. In light of the most recent issues following Superstorm Sandy, it’s time for FEMA to retire the Write-Your-Own insurance companies’ model entirely and move forward with a complete overhaul of the system. These WYO insurance companies have been receiving payments from the federal government while simultaneously reducing much-needed payments to homeowners for far too long, and this decades-old system from the 80’s has got to go. We need something that finally does what the National Flood Insurance Program is supposed to do: fairly pay victims in a timely manner for the damage they suffered," Schumer continued.

A copy of Schumer’s letter is below:

Dear Administrator Fugate,

Since the 1980’s the National Flood Insurance Program (NFIP) has relied upon private property and casualty insurance companies to write and service flood insurance policies on its behalf. Since that time we have seen the number of private flood insurance providers, or Write-Your-Own (WYO) companies, grow to upwards of 80 different providers. This evolution has led to our current reality that features a system in which there are potentially 80 different companies selling policies to property owners, 80 different systems for collecting premiums, and 80 different processes for calculating proper payouts to victims. Not surprisingly, we have seen the failures of this WYO system manifest through the experiences of homeowners across New York that were victims of Superstorm Sandy. That’s why I believe that now is the time to eliminate WYOs from the NFIP program entirely.

A NFIP system without WYOs facilitating the delivery of the product is not without precedent and can build upon the Federal Emergency Management Agency’s (FEMA) already existing practice of offering NFIP policies directly to property owners. NFIP already offers approximately 1 million flood insurance policies directly to policyholders, and while the NFIP does not service all of these policies itself, it is in direct privity of contract with those that it hires to service the policies. 

There is significant evidence to conclude that the WYOs have collectively proven that they are unable to satisfactorily disburse flood insurance to policyholders as a federal program, but rather have defaulted to allowing these policies to be managed as though they are just another line of their business. The profit-driven motivations and incentives for these companies and their subcontractors to minimize payments to customers and keep costs low are understandable, but not commensurate with a federal flood insurance program that should be designed to provide appropriate insurance protection and make fair payments to those that suffer losses. Further, this WYO system also fosters the perverse incentive for the WYOs to fight homeowners in court—because they are not responsible for the legal expenses—rather than arrive at a fair resolution of a claim with a homeowner. 

FEMA should, therefore, retire WYOs from the current flood insurance system and instead allow the NFIP to offer all flood insurance policies directly to the property owners.  This may ultimately allow for FEMA to take a much more active role in ensuring coordination across government agencies. For example, FEMA should work to coordinate resources so that actuaries and adjusters that may already be evaluating a home for potential damage on behalf of the government may satisfy the inspection requirements of another government agency that would conduct the same evaluation. In the aftermath of Sandy we have seen significant overlap in the number of evaluations that a homeowner must endure in an effort to gain assistance from the federal government, and better coordination of these evaluators will not only save the taxpayers but also minimize the burden placed on disaster victims trying to recover.

Again, I believe strongly that an overhaul which includes the retirement of the current WYO model is necessary and would be beneficial to homeowners. While some may argue that the elimination of the WYOs would lead to less competition, I believe that this argument is unconvincing. The elimination of the WYOs would lead to a system in which policyholders interact with a flood insurance provider that is directly accountable and is in a position to ensure greater consistency throughout the program – from the policies that are offered to the process for evaluating a claim. True competition does not exist in the current WYO model anyway, as these providers know that the federal government is ultimately paying for losses they must pay out. Thus, the consistency in how claims are handled and the terms that homeowners pay for could easily mitigate the loss of slightly more varied options offered by private insurers while benefiting the NFIP with an ability to collect and maintain data over how these policies are managed, assessing the risk associated with them. FEMA’s inability to acquire and maintain appropriate data associated with NFIP policies is yet another glaring deficiency in the current program’s model.

Importantly, FEMA does not need to wait for Congressional action to make these changes. It has the authority to make many, if not all, of these changes on its own. I believe that such an overhaul is warranted. We know the current model is terribly flawed and there is evidence to believe that a new model will allow the NFIP program to function more effectively and efficiently going forward. I hope that you will take this opportunity to make these important changes that will hopefully benefit the flood insurance policyholders in New York and across the country.


Senator Charles E. Schumer




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