Report Criticizes Plan to Add Wind Coverage to National Flood Program

The Federal Emergency Management Agency has enough trouble managing its existing duties and should not try to add hurricane wind coverage to the National Flood Insurance Program, according to a new report.

According to an article by Rebecca Mowbray in the New Orleans Times-Picayune, the report from the Government Accountability Office (GAO), found that allowing the flood program to sell wind insurance coverage would be too expensive and too hard to manage, resulting in many policyholders being unable to get paid for claims.

“The report builds on concerns aired in other recent reports by the GAO, the investigative arm of Congress, that found that the Federal Emergency Management Agency does not exercise proper oversight and accounting controls of the flood program and did not have the mechanisms in place to monitor whether private insurers were properly allocating wind and flood damage when Katrina hit, raising the possibility that the flood program was overbilled,” Mowbray says.

To add wind coverage to the flood program, the report says FEMA would have to hire actuaries and computer modelers to make complex calculations about setting rates for wind risk, an expensive proposition in an area where the flood program has no experience.

Mowbray adds that selling wind coverage would also create conflicts of interest for the private insurers that participate in the flood program because the flood program would compete against them in offering wind coverage, raising the possibility that insurers would pull out of the program.

To read the full article, click here: http://www.nola.com/business/index.ssf/2008/05/gao_report_criticizes_plan_to.html