Maryland Seeks Flood Program Changes

March 8, 2004

Fueled by the complaints from victims of Hurricane Isabel, Maryland insurance officials have issued a report calling for changes in the way the National Flood Insurance Program (NFIP) is administered and sold.

“We have seen first hand the loss of homes, cars, personal possessions and commercial properties,” Alfred W. Redmer, Jr., insurance commissioner for the state, wrote in his report to Maryland’s Congressional delegation. “And we have heard and shared the frustration of those whose attempts to rebuild their lives have been made even more challenging because of difficulties in dealing with their insurance companies—and with the National Flood Insurance program.”

The Maryland Insurance Administration (MIA) has taken the position that federal law, not state, governs claims submitted by policyholders under NFIP’s Write Your Own program. Despite this, MIA staff found itself immersed in assisting with the more than 6,000 Isabel claims in the state. Redmer’ssaid more than 70 MIA employees helped NFIP speed up the Isabel flood claims process to limit the number of complaints but that problems still arose.

Hurricane Isabel caused extensive damage to properties along the Chesapeake Bay in September, 2003.

“While many of the issues raised by citizens centered on homeowners insurance questions, the vast majority of problems concerned the NFIP policies and coverage,” the report stated.

Based on the Isabel experience, Redmer offered suggestions for NFIP changes.

“Maryland’s recent experience has shown that greater attention by both state and federal government needs to be shown to the flood insurance program– how it is marketed and sold, what training the sellers should have before being able to sell the product, what coverage should be provides by the policy, how the claims process is handled, and what recourse policyholders have if they are dissatisfied with the outcome.”

Officials must also address NFIP policy compliance in relation to mortgage loans, Redmer said. Since Congress has declared that everyone in a flood plain has to have flood insurance “it is not acceptable for there to be even one Isabel-damaged property that should have had flood insurance and did not” but he found there were many who were uninsured or underinsured. Property owners need to be notified of the flood insurance requirement, the report stated.

Other recommendations include:

• Require WYO insurers to audit policies for rating and classification correctness

• Assure full disclosure of difference between contents and structural coverage

• Explain the 30-day waiting period before coverage becomes effective

• Review the policy that permits an insurer to delay settlement of a claim for contents pending resolution of a structure-related claim

• Establish a time line for inspection and settlement

• Require single not multiple adjusters to avoid consumer confusion

• Create a formal appeals process for policyholders

• Require minimum education standards for producers and adjusters in the WYO program

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