On June 2, 2015, FEMA Federal Insurance and Mitigation Administration Deputy Associate Administrator Brad Kieserman provided written testimony for a House Committee on Financial Services, Subcommittee on Housing and Insurance hearing titled “The National Flood Insurance Program: Oversight of Superstorm Sandy Claims.”
As I stated in my previous blog post, FEMA’s Brad Kieserman Stepping Down, Kieserman’s days at FEMA are at an end, and the announcement of his resignation came just one day before he, “was to testify during a Congressional hearing into the alleged systemic flood insurance fraud that was revealed in the weeks and months and Sandy.” Sure enough, one day later, Kiserman’s written testimony was provided to the subcommittee and published online.1
While Kieserman treads somewhat lightly, he provides some fairly scathing reviews of the current state of affairs with FEMA and the Write Your Own (“WYO”) program including referring to the program as a “melting iceberg”:
Hurricane Sandy showed us in several ways why the 47-year old NFIP is the proverbial melting iceberg: its product is stale and not well understood by consumers; some of the vital services the Program delivers to disaster survivors have decreased in quality over time; the outdated business model we use to deliver the Program makes increasingly little sense in the 21st Century; and many property owners required by law to purchase flood insurance fail to do so.
Kieserman continued, stating, “the NFIP became increasingly disconnected from its real customers-flood survivors,” and that “a significant or catastrophic flood event like Sandy amplifies the Programs’ shortcomings and lays out the need for reforms.” Kieserman indicated that a large part of the problem was continued increases in WYO autonomy and FEMA’s lack of connection to the policyholders:
By the time Sandy struck in 2012, FEMA’s role in the NFIP had devolved to loosely coordinating a broad-reaching network of actors FEMA relied upon to implement the Program. FEMA was entrusting the WYO companies to manage the customer experience. FEMA had limited ability to manage the actual policyholder experience due to deference to WYOs. This relationship is largely memorialized in the equivalent of a contract called “the Arrangement,” which is a federal regulation with the force and effect of law. The policyholder relationship was further complicated by legacy information management technology that is incapable of providing transparency on critical data, and disparate connections to the policyholder.
Additionally, Kieserman indicated that FEMA’s own workforce managing the WYO program was insufficient and understaffed: “FEMA currently governs this insurance network that affects nearly six million people across the country with 80 federal employees in Washington, D.C.—not even enough to dedicate one employee to oversee each WYO.”
Another major issue Kieserman cites is the reliance of the WYOs on other vendors:
Over the years, FEMA has permitted greater amounts of autonomy for WYOs to conduct business without a commensurate increase in the amount of oversight the agency applies to these companies. Moreover, due to business model changes throughout the insurance industry, many WYOs have delegated much of the day-to-day work of Program delivery to vendors, contractors, and sub-contractors over whom they often exercise little or no oversight. Indeed, the litigation after Sandy revealed that FEMA and some WYOs are not properly overseeing the actions of their vendors and contractors, and, in some cases, permit these vendors to manage all aspects of claims handling with little to no supervision.
Kieserman notes that all of these issues put together create a situation where FEMA lacks the requisite knowledge and ability to identify and timely correct any problems:
The current business model affords FEMA limited interaction with the people who directly interact with our customers and deliver our Program, even though FEMA funds all costs of the Program and remains ultimately accountable for paying insurance claims fairly. In this model, FEMA is often the last to know about serious issues in the delivery of the NFIP. FEMA receives information about policies, claims, and WYO performance at a comparatively slow pace in today’s world—our information systems are antiquated, ad hoc, dependent on input from WYOs and others, and routinely 90 days behind real time. We do not have the most basic actionable data about customer experience available in any systemic way. Consequently, the NFIP has no consistent or reliable method to identify systemic problems, pre-emptively identify and address claims or appeals with similar adjustment issues, or recognize patterns from warning signs like policyholder complaints, congressional correspondence, appeals, and other data.
The testimony continues and includes a detailed accounting of the issues discovered post Sandy concerning the fraudulently changed engineering reports and systemic underpayments. In this arena, Kieserman places the blame on the WYOs and FEMA:
Despite letters, appeals, and other data available at the time, FEMA did not promptly discover the use of unlicensed engineers or that the so-called “peer reviews” process utilized by some engineering firms may have allowed for the inappropriate manipulation of engineer findings and conclusions or the outright falsification of engineer reports. In addition, FEMA’s execution of the administrative appeals process required by Federal regulations failed to uncover problems with the adjustment of claims.
Kieserman utilized the remainder of his testimony to outline what has been done to correct the issues discovered in Sandy, including the reopening of 144,000 flood claims, and reforms to the NFIP and WYO program in the future by creating a Reform Branch of the task force. He stated, “[i]f the NFIP is going to continue to be the first line of defense against flood damage for millions of policyholders, then we must change the way we deliver the Program. I believe we must make substantial progress settling litigation and reviewing claims to recover the public trust necessary to undertake credible reform.”
Despite his short tenure, I applaud Kieserman for his efforts in bringing these issues to light. Hopefully, Congress will listen.
As always, I’ll leave you with a (mildly) relate tune. Here’s Rage Against the Machine with Testify: