Allstate to get U.S. subpoena over Katrina claims
I-Fans,
Allstate disclosed in SEC filings that it expects a subpoena from the Department of Homeland Security’s inspector general over the insurer’s handling of wind and flood claims. DHS is the parent to FEMA, which is parent to the National Flood Insurance Program, for with Allstate and about 90 other insurers sell policies and adjust claims. As you can imagine, the administrative costs for the NFIP are enormous. About 30 cents of every premium dollar goes toward insurer expenses. And they call government inefficient. I wonder why? ITP could do it for a nickel, and we wouldn’t leave people underinsured like the overpaid Allstate agents and other useless slobs who sold flood coverage on the coast.
As Bloomberg writes:
“Congress authorized the investigation last year to examine whether insurers improperly saddled the federal flood program with wind-related Katrina claims that they should have paid. Private insurers don’t cover damage from flooding, though they adjust claims on behalf of the government program.“
That was a clause that Trent Lott added to the budget bill.
Allstate says it is confident:
“We are confident in our claims practices and that we paid all of the catastrophe claims fairly and under the appropriate policies,” said Allstate spokesman Michael Trevino.
The head of the NFIP says he knows of no wrongdoing:
“At a House subcommittee hearing in February, David Maurstad, the administrator of the flood program, said he had no knowledge of any damage caused by Katrina’s winds being paid for by his program.”
On the other hand, close ITP readers will recall that in January the Rep. Gene Taylor, D-Miss., wrote in a letter to Barney Frank that an NFIP official told him that “oversight of insurance adjustment is a state regulatory function, and therefore outside FEMA and NFIP authority.”
ITP says: Flood-claim adjusting is NOT outside the Flood Program’s jurisdiction.
NFIP is a government program, but has been administered since 1983 (not long after the departure of Bob Hunter, Jimmy Carter’s insurance chief, now head of the insurance section of the Consumer Federation) by an outside contractor, Computer Sciences Corp., an El Segundo, Calif., contracting giant. Post-doctoral fellows at ITP University will recall that CSC is developer, of course, of “Colossus,” the cornerstone of McKinsey & Co.’s “Core Claims Process Redesign,” which in the early 1990s re-engineered Allstate’s claims handling function, with astounding — and nearly instant — results for Allstate’s profitability: Net income quintupled the first year.
Full professors and Scholars-in-Residence in ITP’s Institute for Advance Insurance Studies know that about a third of CSC’s $14.5 billion in annual revenue comes from the insurance industry. The value of its contract with the NFIP contract: about $35 million.
What I am saying:
First, that CSC has an actual — not apparent — conflict of interest in supervising Allstate, State Farm and the 90-odd insurers who sell and adjust claims under the NFIP but have a much more substantial role as CSC customers. Having a conflict is not by itself a disqualification. But of course, it should be disclosed to the NFIP, Congress, taxpayers and policyholders. This may have been done, but I don’t think so. In fact, the only place I ever heard of CSC’s conflict was right here, reading my own reporting.
And while CSC gets much more from the insurance industry than it gets from the NFIP, it must supervise insurers that have their own conflict in adjusting wind/water claims. Wind — they pay. Water — the
government pays.
War Eagle says: “This whole arrangement is far too circular and conflict-riven — with way too much money at stake — to ensure that insurers were properly supervised in adjusting water claims for the NFIP.” (1)
And who is David I. Maurstad? The director, FEMA’s mitigation division and head the NFIP is a former insurance agent of 25 years, who became mayor of Beatrice, Neb., then a Republican lieutenant governor. Maurstad was named NFIP head in 2003, when FEMA was headed by Michael D. Brown. I do not know if Maurstad was a Brown appointee. Also unknown: Whether State Farm, which is not publicly traded and not required to make the same disclosures, also is on DHS IG’s subpoena list.
So, ITP recommends: That the DHS IG include as part of its NFIP probe CSC’s oversight of WYO carriers as well as Maurstad’s oversight of CSC.
Thanks again to Ida.
1. Translated from original Eaglese by Gene Taylor: “Dis-eh heyuh ‘hole ‘rangmunt, sunny bowah, iz faw too suh-kew-lah ‘n kunflict-rivun — wuth way too mush muneh at stake, thar sun — t’ enshowah that insurahs wuh propl’y supuvahzed in adjustin wawhtah clayums. Sumfin’ jes aint raht. ‘As all ah noh.”
The Bloomberg story:
By Erik Holm
Bloomberg News
May 3, 2007, 4:10 PM CDT
Allstate Corp., the second-largest U.S. home and auto insurer, said the Department of Homeland Security plans to subpoena the company as part of a probe of Hurricane Katrina claims.
The subpoena for documents stems from the department’s investigation of insurers that sell and administer policies for the National Flood Insurance Program, Allstate said in a regulatory filing today. The Northbrook, Illinois-based insurer has been cooperating with the inquiry, it said.
Congress authorized the investigation last year to examine whether insurers improperly saddled the federal flood program with wind-related Katrina claims that they should have paid. Private insurers don’t cover damage from flooding, though they adjust claims on behalf of the government program.
Senator Trent Lott, a Mississippi Republican who lost his home in the 2005 Gulf Coast storm, was among legislators who called for the probe. At a House subcommittee hearing in February, David Maurstad, the administrator of the flood program, said he had no knowledge of any damage caused by Katrina’s winds being paid for by his program.
Shares of Allstate rose 17 cents to $63.02 in New York Stock Exchange composite trading. The stock has increased 11 percent in the past 12 months, compared with the 13 percent gain in the KBW Insurance Index.
Copyright (c) 2007, Chicago Tribune
May 21st, 2007 at 7:13 am
[…] Also, keep you eyes open for the coming Inspector General’s report from the Department of Homeland Security on the integrity of the National Flood program, administered by so-called Write Your Own carriers and overseen by Computer Sciences Corp. […]