Insurance Transparency Project

ITP Fans, Fellow Mowbraites,
Listen, we are getting pretty close to nut cutting time here, thanks to the indomitable Mowbray, who is bucking for an ITP Silver Eagle Award for excellence with her recent spate of blockbusters, including this one, which ran May 20.

Between her, fellow Times-Pic reporter David “Hammer” Hammer and the indispensable Anita Lee of the Sun Herald, the Gulf really lucked out, newspaper-wise.

This one, however, is enough to show to a grand jury.

The story says Allstate’s is allowing costs 300% higher and more for the same construction materials if damage was attributable to flood versus wind. At a house on Marina Drive, for instance, Allstate paid radically different prices for the same sheetrock:

If Allstate attributed the damage to wind or rain, for example — putting it on the hook for payment under the customer’s homeowner policy — the company priced the cost of removing and replacing the drywall at 76 cents per square foot. But if the damage was blamed on storm surge or flooding, the estimated cost of removing and replacing the drywall more than quadrupled, to $3.31 per square foot.

Mowbray spells out the issue. Allstate makes the government flood program pay three times the price it pays itself for the same thing. Becky, break it down for us:

If Allstate attributed the damage to wind or rain, for example — putting it on the hook for payment under the customer’s homeowner policy — the company priced the cost of removing and replacing the drywall at 76 cents per square foot. But if the damage was blamed on storm surge or flooding, the estimated cost of removing and replacing the drywall more than quadrupled, to $3.31 per square foot.

The tip seems to have come public adjusters, who negotiate on behalf of policyholders. In theory, public adjusters shouldn’t be necessary, as insurers are supposed to pay promptly and fairly. One such adjuster is Chris Karpells:

Karpells said that, in his work as a public adjuster, he has seen the dual pricing on almost every Allstate adjustment that lists the damage line by line. And from his experience, Allstate is the only company that’s doing it, said Karpells, a third-generation carpenter from Massachusetts who moved to Slidell several years before Katrina hit. Karpells said he believes that “someone is saying, ‘On a flood policy, we use this database. On a wind policy, we use this database.’ They’re front-loading all the money on the flood policy.”

Allstate denies it:

“Our firm position is that there are not any discrepancies in the rates charged,” said Mike Trevino, a spokesman for Allstate. “The component prices reflect current market conditions. And they are the same for wind and flood.”

He make a point that can at least be seen a plausible: Repairing flooding costs more. But is that really true, all you home-repair types?

“The cost to repair wet drywall versus dry drywall is different. The cost to repair carpet from one room to carpet of another room may be different because you may have different quality carpet from room to room,” Trevino said. “You can have different methods and approaches regarding paint. In one room, you may have one coat of paint, but in another room, you may need more than one coat of paint depending on the color.”

I tend to agree with Karpells: “It’s apples to apples. The facts speak for themselves.”

It gets worse for our friends from Northbrook. The homebuilders are saying Allstate’s wind price is too low and its water price too high. Implication: underpaying policyholders, gouging the government.

Craig Berthelot, vice president of the Home Builders Association of Greater New Orleans and owner of Berthelot Construction Services, which renovates and repairs storm-damaged homes in the New Orleans area, said that the real price for replacing drywall is between the prices that Allstate calculated.

Without the tear-out portion of the job, it costs about $2 to $2.50 per square foot to replace drywall, he said. The $3.31 billed to the flood program for tearing out and replacing drywall is high but more realistic than Allstate’s 76 cents on the homeowners policy, Berthelot said.

Mowbray provides the context: a Sept. 21, 2005 memo from NFIP head David Maurstad, the former Nebraska insurance agent and lieutenant governor, expediting flood claims:

The memo waived the requirements that customers prove their losses and instructed the insurance companies to pay the flood policy limits if the home was washed off of its foundation or if the home was in “standing water” for “an extended period of time.”

Rep. Gene Taylor, D-Miss., suspects the idea came from the insurance industry, and his policy chief, Brian Martin, says the memo opened the way for abuse:

“They get to go right out there and give them a check. It’s from the federal government,” Martin said. “It gives the homeowner something so that there’s not huge pressure on the insurance company to pay something now.

“The flood insurance program made it easy for a few of the insurance companies to manipulate those claims to put it all on flooding,” Martin said. “The taxpayers pick it all up.

Now even FEMA can’t ignore this:

FEMA also expressed bewilderment over the idea of charging government and private insurers different prices, when told about practices in the New Orleans area.

“I don’t have an explanation for that,” said Tim Johnson, senior insurance examiner on the claims section at FEMA. “If that’s what they say is happening, I would love to see it. The overpayment surely does affect me.”

I-Fans, Katrina and insurance is a big puzzle, but I think the pieces are starting to come together. Stay tuned.

Ida, keep them coming. There’s no ITP without you.