Exclusions under the  flood policy include damages caused by wind or a windstorm. In such cases, the WYO insurer must determine and apportion  the damages caused by wind that it insures, along with those caused by  flooding, insured by NFIP. NFIP Does Not Systematically Collect and Analyze Data on Related Wind Damages When Collecting Flood Claims Data

For hurricane-damaged properties, NFIP does not know whether both  wind and flooding contributed toward damages nor the apportionment of  damages between them, limiting its ability to monitor the accuracy of  flood payments and address potential conflicts of interest that may arise in  certain damage scenarios. Based on our preliminary review, we found that  NFIP did not systematically collect and analyze data on wind-related  damage when collecting flood claims data on properties subjected to both  high winds and flooding, such as those damaged in the aftermath of  Hurricanes Katrina and Rita. Further, such information is not sought even  when the same insurance company serves as both the NFIP WYO insurer  and the insurer for wind-related risks, posing a potential conflict in certain  damage scenarios where properties are subjected to both types of perils. In our review of  data elements in NFIP’s claims database, we found that NFIP does not  require WYO insurers, which are responsible for adjusting the flood claim,  to report information on property damages in a manner that could allow  NFIP to differentiate how these damages (to the building or its contents)  were divided between wind and flooding, even when the WYO insurer is  also the wind insurer for the property. This lack of  transparency over both the wind and flood damages on hurricane- damaged properties limits NFIP’s ability to verify that damages paid for  under the flood policy were caused only by the covered loss of flooding. FEMA officials stated that they do not have access to wind damage claims  data from the WYO insurers. FEMA may request summaries and analyses of this  information at any time to ensure proper processing of flood claims. As a result, for  hurricane damaged properties subjected to both high winds and flooding,  NFIP may not have all the information it needs to ensure that its claims  payment was limited to only flood damage. However, we found that FEMA’s  reinspection program did not systematically incorporate a means for  identifying whether nor the extent to which wind-related damages  contributed to the losses. Without the ability to examine damages caused  by both wind and flooding, the reinspection program is limited in its ability  to assess whether NFIP paid only the portion of damages it was obligated  to pay under the flood policy. That is, information  about the wind damage during the reinspection process was not  documented or analyzed in a systematic fashion. Finally, we explored whether NFIP could use data collectively gathered by  state insurance regulators on property-casualty claims resulting from the  2005 hurricane season to match with NFIP flood claims data. Obtaining both the flood and  wind adjustment claims data, whether from the same WYO insurer that  services both or from different insurers, would be necessary to NFIP to  verify the accuracy of the payments made for flood claims. Information collected and assessed through FEMA’s claims reinspection  program is also of limited usefulness in confirming or validating the  accuracy of flood payments made by NFIP on properties damaged by both  wind and flooding. Finally, we determined that using hurricane claims data collected by state  insurance regulators would not have provided data on a property- or  community-level basis to help NFIP determine how much damage was  caused by wind versus flooding, and how these damages were apportioned  between the two perils.
Why GAO Did This Study

Disputes between policyholders and property-casualty insurers over coverage from the 2005 hurricane season highlight challenges in determining the appropriateness of claims for multiple-peril events. In particular, events such as hurricanes that can cause both wind and flood damages raise questions about the adequacy of steps taken by the Federal Emergency Management Agency (FEMA) to ensure that claims paid by the National Flood Insurance Program (NFIP) covered only damages caused by flooding. As a result, the Subcommittees asked GAO to provide preliminary views on (1) the information available to and obtained by NFIP through its claims process in determining flood damages for properties that sustained both wind and flood damages, and (2) the information collected by FEMA as part of the NFIP claims reinspection process. GAO collected data from FEMA, reviewed reinspection reports, reviewed relevant policies and procedures, and interviewed agency officials and others knowledgeable about NFIP.

What GAO Found

NFIP does not collect and analyze both wind and flood damage claims data in a systematic fashion, which may limit FEMA's ability to assess whether flood payments on hurricane-damaged properties are accurate. Instead, NFIP focuses only on the flood claims data to determine whether the amount actually paid on a claim reflects the damages caused by flooding. Flood claims data, collected by NFIP through the write-your-own (WYO) insurers--including those that sell and service both the wind and flood policies--do not include information on total damages to the property from all perils. That is, NFIP does not systematically collect information on wind damages from the WYO insurer when a flood claim is received. FEMA officials state that they do not have authority to collect wind damage claims data from WYO insurers, even when the insurer services both the wind and flood policies on the same property. As a result, for hurricane-damaged properties, such as those damaged by Hurricanes Katrina and Rita, NFIP does not have all the information it needs to ensure that its claims payments were limited to damage caused by flooding. Concerns over the processing of these flood claims are heightened when the same insurance company serves as both NFIP's WYO insurer and the property-casualty (wind) insurer for a given property. In such cases, the same company is responsible for determining damages and losses to itself and to NFIP, creating a potential conflict of interest. The lack of both flood and wind damage data also limits the usefulness of FEMA's quality assurance reinspection program for NFIP flood claims. GAO found that the NFIP reinspection program did not incorporate a means for collecting and analyzing both the flood and wind damage data together in a systematic fashion to reevaluate the extent to which wind and flooding were deemed to have contributed toward damages to the property. Further, we explored whether the wind-related claims data collectively gathered by state insurance regulators would be useful to NFIP to reevaluate damage assessments. We determined that this information would be of limited value to NFIP in reevaluating wind versus flood damage determinations made because such data is not collected in enough geographic detail to match with the corresponding flood claims data on a property- or community-level basis. Without the ability to examine damages caused by both wind and flooding, the reinspection program is limited in its ability to confirm whether NFIP paid only for losses caused by flooding.