After The Flood: Insurers Response Under Scrutiny

Written by Adam Janos on . Posted in Banking/Insurance, Budget/Taxes, Economic Development, Environment, Housing.

In the wake of Superstorm Sandy, New Yorkers have struggled to recover and rebuild.

But for some residents living in flood zones, the unprecedented natural disaster has been compounded by man-made challenges, judging from the deluge of complaints about neglect from insurance companies.

In response, Gov. Andrew Cuomo issued an executive order requiring insurance adjusters to respond to complaints within six business days instead of the 15-day period previously allowed. Cuomo also launched an investigation into Narragansett Bay, Tower and Kingston, three particularly poorly performing insurance companies. Furthermore, he issued an online report card detailing complaint data from homeowners so that New Yorkers could see which companies were providing lackluster service.

The storm damaged houses on coastal areas, including this beachfront home in the Far Rockaways. Widespread flooding raised questions about flood insurance coverage and has prompted lawmakers to consider changes to the insurance industry.

“I think for Governor Cuomo, in these kinds of situations, he rightfully feels that increasing transparency has numerous positive effects,” said Ben Lawsky, Superintendent of the Department of Financial Services (DFS). “When consumers know these companies are performing, it incentivizes compaines to perform better, and creates more of a race to the top and not a race to the bottom.”

Those regulatory actions—and other measures still in committee in the Assembly—have the insurance industry worried that an overly reactive government could cause companies to flee for less regulated markets.

“What’s in our real best interest is that we have insurance carriers that want to write business in New York State,” said state Sen. James Seward, a Republican who chairs the Senate Insurance Committee. “That’s in the best interest of consumers. If we make these difficult, expensive, onerous new regulations, that could very well scare carriers out of the market. So we have to strike the right balance here. Certainly some of these measures go overboard.”

Much of the damage wrought by Superstorm Sandy is flood-related, and insurance coverage for the damage is at the center of the debate. Unlike typical homeowner’s insurance, flood protection isn’t carried on a state level. A federal program run by FEMA called the National Flood Insurance Program (NFIP) provides flood insurance but because it is federal, the governor and state Legislature have no impact on policy relating to it.

There has been considerable confusion among homeowners regarding the relationship between the national flood insurance they do or do not own and the details of their coverage, in part because FEMA’s “Write Your Own” policy allows insurance carriers to offer the NFIP’s services under the umbrella of a single homeowner’s insurance policy. Nonetheless, despite the “buy in one place” nature of the insurance, the regulatory agencies involved in the two groups are distinct. This means, for example, that when the state’s Department of Financial Services demanded that adjusters cut their inspection times on damage complaints from 15 to six days, flood adjusters were not affected, even when the insured’s coverage was purchased under one carrier. Flood adjusters continue to have 60 business days to respond, no matter what Cuomo, Superintendent Ben Lawsky or the state Legislature demands.

Where the state government does have a role, however, is in addressing the mass confusion that occurred in the language of their coverage.

“The vast majority of New Yorkers do not know what’s in their insurance policy,” said Assemblyman Kevin Cahill, who chairs the Assembly Insurance Committee. “Misleading statements are being made all along the way; on the declarations page [of a policy] it says something is covered—then 60 pages later, it says there’s an exception. And we’re trying to get to the root of why there are all these complex legalese exceptions.”

Assembly Speaker Sheldon Silver’s Homeowner’s Bill of Rights is designed to address that issue, by mandating that the insured get a simplified explanation telling consumers where they are and aren’t protected.

“I understand what he’s trying to accomplish, but we already have a declarations page,” said Ellen Melchionni, president of the New York Insurance Association. “No matter what font it’s in, no matter how big the font … it won’t make a significant difference.”

Michael Whyland, a spokesman for Silver, disagrees.

“The bottom line is this legislation directly addresses concerns we have been hearing from thousands of homeowners who had to wait too long for their claims to be processed after Superstorm Sandy, and were taken advantage of in their time of need,” Whyland said.

It’s not hard to understand why the insurance industry would oppose such a bill. Breed vs. Insurance Company of North America, a case decided in New York in 1978, established that any legal ambiguity within a coverage dispute of an insurance claim favors the insured. So the more specific insurance companies can make their contracts, the less the chance that resources will be lost to the gray zone each individual case can bring up.

The Hugh L. Carey Tunnel, formerly the Brooklyn Battery Tunnel, was flooded during Superstorm Sandy last year. Some New Yorkers struggled to get insurance claims processed in the wake of the storm.

Another big source of stress for homeowners fighting to recoup damages through their policy are so-called “anticoncurrent causation exclusions.” These exclusions state that, in the event that there are multiple causes of property damage, a homeowner is only covered if all causes of damage are insured. With Sandy—where high speed winds led to rising tides, which in turn led to flooding—homeowners were only covered for damage if they had both wind and flood insurance. Those with only one of the two were left out in the rain.

“We are looking at regulating, limiting or requiring [anticoncurrent causation exclusions] to be more prominently displayed,” Cahill said.

Seward offers a more cautious take.

“I am open for discussion in that area, but … we need to strike the balance between additional consumer protection and not driving New York insurance carriers out of the market,” he said.

In addition to Silver’s bill, legislation introduced by Assemblyman James Skoufis would codify the executive order that mandates adjusters respond to claims within six days.

While Silver’s and Skoufis’ bills look to address future problems for homeowners, Democratic Assembly members Helene Weinstein and Matthew Titone have introduced legislation to help provide consumer protection in the courts. Titone’s bill would expedite insurance claims once they got to the court system, and Weinstein’s would establish a private right of action for insured homeowners who allege unfair claim settlement practices by insurance companies.

“All these proposals are efforts, brought out of frustration, brought out of the devastation that occurred,” Melchionni said. “I feel for these people. [The Department of Financial Services] completely diverted our resources [during the storm] to comply with data reports, and made it all completely burdensome. The provisions they’re considering will create an availability crisis.”

Skoufis dismisses Melchionni’s arguments, saying that the data requirements are beside the point.

“Paperwork as the reason to oppose a bill that ensures timeliness is illogical,” Skoufis said. “For insurers it’s about the bottom line, and for us it’s about doing the right thing.”


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