Panel OKs flood insurance reforms

U.S. Senate committee also urges policy review

March 31, 2004|By Andrew A. Green | Andrew A. Green,SUN STAFF

WASHINGTON - Responding to complaints from Tropical Storm Isabel victims about the federal flood insurance program, a U.S. Senate committee recommended yesterday a series of reforms and called for an independent review of the standard flood policy to ensure that it adequately covers losses.

The proposed changes in a bill reauthorizing the National Flood Insurance Program are designed to address many of the complaints that have been leveled by Isabel victims from Maryland to North Carolina - that consumers, agents and adjusters didn't understand the program and that settlements were too small to return victims to their homes.

"We have an obligation, especially after hearing of the plight of the victims from Hurricane Isabel, to make sure that future flood victims do not face the same obstacles to receiving fair compensation under their policies," Sen. Paul S. Sarbanes, who spearheaded the amendments, said in a written statement.

In addition to mandating a series of reforms, the bill calls for the General Accounting Office, the investigative arm of Congress, to submit a report within a year on whether the coverage under the flood program is sufficient to restore policy holders to their pre-disaster state. The report also would examine the practices of the NFIP and insurance adjusters in estimating losses after the flood.

"I'm so pleased," said Baltimore County Executive James T. Smith Jr. "I called for an independent investigation because our victims have lost faith in the program that was created to protect them, and too many in the insurance industry preyed on our flood victims. If the GAO investigates, the hunters become the hunted."

The Senate Committee on Banking, Housing and Urban Affairs voted unanimously to recommend the legislation to the full Senate. If it is passed, it would have to be reconciled with a version passed by the House of Representatives.

NFIP head Anthony S. Lowe said the Bush administration has not taken an official position on the bill. But he said that in the aftermath of Isabel, his agency has come to many of the same conclusions about the faults of the program that Sarbanes addressed in his amendments.

"What they have proposed is consistent with the direction we're moving in generally and is something we will be able to work with to improve the program," Lowe said.

Sarbanes' amendments generally follow recommendations Sen. Barbara A. Mikulski made to the committee last week. They are also similar to suggestions made by former Maryland Insurance Commissioner Steven B. Larsen in a report commissioned by Baltimore County government, and those made by Larsen's successor, Alfred W. Redmer Jr.

Six months after the storm, more than 200 Maryland families are still living in temporary housing while they attempt to rebuild their homes. Many of those hit hardest by the storm say their flood insurance settlements fall tens of thousands of dollars short of the cost to rebuild, forcing them to choose between crushing debt and abandoning their homes.

"After Hurricane Isabel struck, the National Flood Insurance Program wasn't there for people the way it should have been," Mikulski said in a written statement. "I'm proud the Committee has accepted our recommendations."

The bill would direct the NFIP to develop new forms explaining in simple language what the flood policy covers and excludes, to be distributed to each policyholder. People buying flood insurance would be required to sign acknowledgments showing they were given the forms and a copy of the policy.

The acknowledgment would also require the private insurance agents who sell federal flood policies to notify consumers that the standard policy does not cover the contents of the home. Separate policies are available for contents, but many Isabel victims said they were unaware that their possessions were not covered.

Sarbanes' amendments would require the NFIP to develop a handbook, to be distributed to consumers and insurance companies and agents, explaining the claims process. They would also require the NFIP to create a formal appeals process for dissatisfied policy holders.

At the urging of Sarbanes, Mikulski and North Carolina Sen. Elizabeth Dole, Lowe agreed last week to review all Isabel claims in which policyholders are not satisfied. NFIP spokesman Mark Stevens said yesterday that the agency is preparing an outreach effort to contact Isabel victims to inform them that they may appeal their settlements.

The bill would require the NFIP to establish training standards for agents who sell flood insurance.

"If those recommendations were adopted by the entire Congress and implemented, I think it would go a long way to solving so many of the problems that people experienced here in Maryland from Isabel," Larsen said.

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