5 things FEMA learned from Sandy

While watching the devastating floods that swamped Texas and Oklahoma last week, many survivors of superstorm Sandy no doubt felt a kinship with the families forced to scramble from their homes.

That bond may deepen as the flood insurance claims process begins, a process that left many New Jerseyans frustrated and feeling cheated by the National Flood Insurance Program. The NFIP is run by the Federal Emergency Management Agency — better known by its four-letter acronym FEMA, which might as well be a four-letter word in parts of the Jersey Shore.

FEMA has been trying refocus its mission as a "survivor-centric" agency by implementing new post-Sandy procedures for how they respond to flooding disasters.

To that end, outgoing NFIP head Brad Kieserman sent out a bulletin to flood insurance providers this week, reminding them that FEMA expects "full transparency" in how claims are serviced.

Here's five other axioms Kieserman said insurers should stick to:

1. Best practices should be used when it comes to exclusions in the Standard Flood Insurance Policy.

Many homeowners in New Jersey were stunned when their flood claims were denied because the insurance company's adjuster determined that the damage that was revealed after Sandy was actually attributable to earth movement, or house settling, which is not covered by insurance.

FEMA head Craig Fugate has said previously that the widespread use of the earth movement exclusion to deny claims was not what was envisioned when it was defined in the NFIP.

2. Adjusters must spend an adequate amount of time to evaluate a claim.

The northeast does not have a significant population of qualified flood insurance adjusters so when Sandy hit, insurers had to bring in out-of-state help, according to the Property Casualty Insurers Association of America, the insurance industry's lobbying arm.

FEMA even took the extraordinary step of implementing an emergency certification to add 5,000 adjusters to the Sandy-affected region. Still, there were 144,000 claims originating from Sandy, including 74,000 in New Jersey, leading some in the industry to wonder if heavy caseloads were at least partially to blame for errors in Sandy claims.

3. Claims should be adjusted for where the incident occurred, including the differences in materials costs between different states.

Maryann Flanigan, lead attorney for Sandy cases for New Jersey Legal Services, testified before Congress in 2014 about one client who was underpaid by $40,000 because their adjuster, who was from the Midwest, failed to account for the higher unit prices in New Jersey.

"Almost every client who has contacted us regarding a flood insurance issue has had a problem involving an insufficient offer," she said.

4. All engineering reports, including any drafts, should be included with the claim file, which must be accessible to the policyholder at their request.

Evidence has surfaced that some engineering reports — post-storm inspections of a home's structure — were overruled and modified by personnel who had never visited the home in question or spoken with the engineer who created the original report. These improperly-changed reports could then be used as the basis to deny a policyholder's flood insurance claim.

During a Congressional hearing earlier this week, Kieserman said 11 percent of all Sandy claims in court — so about 225 — involved an allegation that key inspection documents were changed in a way that would cast doubt on Sandy as the cause of the damage (recall "earth movement" from No. 1).

5. Every effort should be made to prevent underpayment of claims, just as it is to prevent overpayment.

Though Kieserman denies that insurers have an incentive to underpay claims, U.S. Senator Robert Menendez, D-N.J., among others, have long argued that the penalty structure is out of whack.

In announcing a task force to look into the matter, Menendez said last year that the objective was for "FEMA and the insurance companies to strike the right balance, so that the only incentive created is simply to get the claim right."

Russ Zimmer: 732-557-5748, razimmer@GannettNJ.com