By Michael D. Carli, RPA, CFGA
As a FEMA Certified Flood Adjuster and the owner of a flood specific adjusting company, All Seasons Adjusting, Inc., I do care about the success and sustainability of the National Flood Insurance Program (NFIP) for all stakeholders. Too many people have a tendency to compound the problems of the NFIP verses providing solutions. I am presenting a solution that provides sustainability, transparency and an equitable solution. The following are suggestions for a sustainable National Flood Insurance Program.
Recently a few articles have been published about what the problems and solutions to the NFIP. Most of these articles suggest increasing the policy count, increase the premiums, increase participation of private flood insurance, re-insurance conversation, have more studies and many more suggestions. Many suggestions in these reports would take years and millions of dollars to implement and therefore costing US taxpayers. This author is not opposed to some of these reports suggestions, but time is not our ally when the NFIP is over 24 billion dollars in debt.
Consider that the national press organizations criticize NFIP relative to policyholders not getting paid enough on their flood claim. Rarely do you see an article published about the property underwriting and flood zone ratings. There have been a few articles about flood premiums but are usually buried in an article about the NFIP. So why is this solution to the NFIP being looked at from 40,000 feet verses where the real public perception begins, the delivery of the flood claim.
It appears that few people talk about the actual delivery of the product, the flood claim. The suggestions below could be implemented quickly with little cost.
The flood program is based upon the National Flood Insurance Program Act of 1968 with insurance carrier (WYO’s) participation several years later. The National Flood Insurance Program (NFIP) is a federal program administered by FEMA and not a typical insurance carrier homeowner policy. Too many people have confused the word “policy” with the word “program” and therefore the need for clear understanding of the National Flood Insurance Program.
Instead of looking at the NFIP solutions from “40,000 feet level”, lets start on the ground. As a FEMA NFIP Certified Flood Adjuster we have a unique understanding of the problems and concerns facing policyholders during a crises. The FEMA NFIP Certified Flood Adjuster is the “boots on the ground” person the policyholder’s see as a face-to-face engagement with their flood claim.
The NFIP is a Federal Program, similar in nature to that of Medicare, Obama Care and other federal assistance programs. Why should the NFIP be any different since most people on Medicare purchase an additional gap policy to cover costs not paid by Medicare? So in keeping with this concept, consider the following.
Currently, the NFIP provides coverage for flood damage to the dwelling and contents under the Standard Flood Insurance Policy (SFIP) to indemnify a policyholder from direct damage by and from flood. With that being said, the program needs to re-brand itself as Utility Policy.
As a Utility Policy, the program would only pay for average grade materials and labor based upon an established and published FEMA/NFIP Unit Cost Database. FEMA/NFIP provided unit cost database would use the loss location zip code along with appropriate market conditions, to determine unit costs for average grade materials and labor.
If FEMA/NFIP does not want to publish a unit cost database they can contract with an outside data base firm. There are several firms and publications that produce unit cost repair databases for the construction and insurance industry. The FEMA/NFIP unit cost database would be distributed quarterly along with any needed update associated with a specific catastrophe. The FEMA/NFIP unit cost database would be forwarded to the software estimating programs used by the adjusting community for a flood specific FEMA/NFIP unit cost database. This FEMA/NFIP unit cost database would be available to the public thereby providing transparency. Other federal assistance programs providing damage assistance for catastrophic loss repairs could also use the FEMA/NFIP unit cost database for their damage estimations.
Many dwellings have upgraded/custom materials and unit costs are arbitrary depending on the flood adjuster, contractor or public adjuster providing a flood damage estimate. Any upgrade/custom materials with labor can be accounted for with a separate “Gap Policy” purchased by the policyholder through an insurance carrier. Currently there are a few carriers offering an excess policy to accompany the NFIP SFIP. For example these include additional basement coverage, additional living expenses, higher limits for decks and so on. The policyholder should have a choice for a custom/upgrade coverage policy as an accompaniment to their NFIP SFIP policy. This policyholder choice would bring additional premium to the insurance carrier.
Based upon the implementation of a FEMA/NFIP National Unit Cost Database and Re-Branding the National Flood Insurance Program as a Utility Policy, the aforementioned solutions is a win-win for all stakeholders involved and here is why.
- The policyholder now understand exactly what they are going to be paid based upon direct damage by and from flood with the published national unit cost data base.
- The ambassadors of the NFIP, the certified flood adjuster’s focus on flood damage details, i.e. scope ensuring accuracy.
- The flood damage cost is irrelevant due to the published NFIP database. The policyholder, working with the flood adjuster would ensure flood damage estimates are accurate without the anxiety of cost discrepancies.
- Supplemental claims based upon policyholder’s contractor’s estimates would be non-existent unless the flood adjuster missed a specific scope issue.
- The flood claims examination process for all stakeholders would be simplified relative to scope of damages and applicable coverage, verses the unit costs.
- Most flood claim litigation is based upon alleged claim under payments. With the FEMA/NFIP National Unit Cost Database and Policy Rebranding, litigation expenses and settlements would be almost non-existent. This would be a multi-million dollar savings to FEMA. There will be some litigation based upon coverage interpretation, but not damage valuations.
- Premium costs can be precisely determined by having the average cost database with the projected height of flood damage to a dwelling/structure.
- Carriers (WYO’s) now have another income stream by choosing to provide GAP Flood Endorsement.
- Claim overpayments based upon a FEMA or IPIA audit cost interpretations would be non-existent.
- Flood damage estimates from different insurance carriers would show the same unit cost thereby creating consistency and transparency to policyholders.
- The National Flood Insurance Program, a Utility Policy, is now a transparent federal program.
- Policyholders flood claim settlements are now fair and equitable leading to claims closing faster with a positive claim experience.
I am sure there are several other benefits not mentioned above along with many naysayers. However, I am presenting a solution that provides sustainability, transparency and an equitable solution.
The NFIP needs to change quickly and the aforementioned changes would provide a starting point as seen from a “boots on the ground” FEMA NFIP Certified Flood Adjuster.
Michael Carli, RPA, CFGA