Business Of Disaster: Insurance Firms Profited $400 Million After Sandy

Business Of Disaster: Insurance Firms Profited $400 Million After Sandy
By Laura Sullivan
May 24 2016

This story is Part 1 of a two-part series. See our second piece about local recovery programs that are struggling to help homeowners

On a cold rainy day last fall, dozens of people gathered in a plaza across the street from New Jersey’s state Capitol. They held press conferences and slept overnight in lawn chairs.

Everyone had come to make the same point: They’d made it through Superstorm Sandy, which hit the shores of New Jersey and New York in October 2012. But three years later, many hadn’t made it home.

Doug Quinn, a 51-year-old from Toms River, N.J., had been in the plaza for two days.

“I should be at home in my house and part of my community and instead I’m here doing this,” said Quinn. “I thought it’ll be all right; my insurance will take care of what needs to be taken care of and I’ll be back home in three to four months. It’s [been] three years and I’m still not anywhere close. I look back now and think how naive I was.”

Superstorm Sandy wasn’t a disaster for everyone, though. For some, it was big money.

NPR and the PBS series Frontline have spent the past year investigating the business of disaster and have uncovered a complex system in which private companies profit and homeowners and clients suffer.

At the center of that system is the National Flood Insurance Program, which is designed to help in disasters like Sandy. Almost everyone with a mortgage who lives near water pays for flood insurance through the program, so more than three years later most residents expected to be home.

But in many cases that didn’t happen. While thousands of homeowners like Quinn said they have not received the recovery help they need, our investigation found that their private insurance companies that administer the government’s flood program made as much as an estimated $240 million to $406 million in profit annually over the past four years.

We reached out to flood insurers — including some of the nation’s largest firms — that represent the majority of homeowners affected by the storm and all declined to comment on this story. Records show that nearly 80 firms participate in the government’s flood program.

Robert Hartwig, head of an industry group funded by the insurance companies, said insurance companies price their services to make a reasonable profit, like any business.

“It is always going to be the case — in the event of a major catastrophic loss where hundreds of thousands of people will have seen damage or complete destruction of their property — in some instances that they will believe they are due more than in fact the claim was ultimately adjusted for,” he said.

“This is a fee-for-service operation,” said Hartwig, president of the Insurance Information Institute. “The federal government determines what the appropriate payment is.”

Still, FEMA’s top flood official acknowledged that the program needs fixing and told NPR and Frontline that he is pursuing reforms. Government auditors asked the Federal Emergency Management Agency seven years ago to impose stricter oversight of the program, including insurers’ profit margins. But little has been done.

“What I can tell you is that I am focused on those policyholders and insuring that they get the resources and the payouts they are entitled to,” said Roy Wright, who runs FEMA’s flood program. He acknowledged that the program does not provide enough oversight of the firms. “Because when I go back and look, while we were providing oversight, it was not enough.”

And after our reporting, FEMA announced Monday it will include more transparency in and oversight of the National Flood Insurance Program. That includes overhauling its contracts with private insurance companies and assigning a person to help policyholders through an appeals process.

‘The Game Was Stacked Against Us’

To understand the challenges homeowners are facing, we set out for Toms River, N.J., where Quinn’s house used to be.

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