A U.S. Government Accountability Office (GAO) report released this week said the Federal Emergency Management Agency (FEMA) has not yet revised its compensation methodologies for private insurers, in accordance with GAO recommendations, to reflect the requirements of the Biggert-Waters Flood Insurance Reform Act.
The report said there are inconsistencies in how private insurers, known as write-your-own (WYO) companies, reported flood data to the National Association of Insurance Commissioners (NAIC), which has made it challenging to determine expenses and set compensation rates. Without quality expense data, FEMA lacks the information to determine the appropriate amounts WYO companies should be reimbursed.
“GAO also found the ways in which WYO companies operate, including how companies compensate agents and third-party vendors (with which some companies contract to conduct some or all of the management of their NFIP policies) can affect a company’s expenses and profits,” the report said. “Considering company characteristics would allow FEMA to more effectively develop its compensation methodology and determine the appropriate amounts to reimburse WYO companies as required by the Biggert-Waters Act.”
GAO made several recommendations in 2009 to help FEMA meet the Biggers-Waters Act requirements, but not all of them have been met. The report said FEMA should consider company characteristics when developing the new WYO compensation methodology.