The federal government has long been a participant in addressing risks that private property-casualty insurers have been unable or unwilling to insure. One of these risks is damage due to flooding. While NFIP backs the flood insurance policy, it generally contracts the sale and servicing of the policies out to private property-casualty insurers, known as WYO insurance companies. About 96 percent of NFIP’s policies are sold and serviced by WYO insurers. For a given property, the WYO insurer writing and administering the flood insurance policy on behalf of NFIP may also provide coverage for wind-related risks on the same property. Through its program contractor, FEMA operates a reinspection program to monitor and oversee claims adjustments and address concerns about flood payments. The reinspection program’s activities encompass reevaluating the flood adjustments and claims payments made on damaged property to determine whether NFIP paid the proper amount for flood-related damages. The program conducts on-site reinspections and reevaluations of a sample of flood claim adjustments. Determining the cause and extent of damages is primarily the job of insurance adjusters, who are either employed or contracted by insurance companies and generally licensed by the states. Adjusters assess damage; estimate losses; and submit required reports, work sheets, and photographs to the insurance company, which reviews the claims and approves them for payment. In general, insurance adjusters are paid on a percentage basis or fee schedule tied to the amount of damages. These adjusters can fall into several categories: Staff (or company) adjusters are employees of insurance companies who determine the amount of damages payable on claims under a contract of insurance. Independent adjusters and adjuster firms are contractors that insurance companies hire to assess damages and determine claims losses. Emergency adjusters are sometimes allowed by states to operate on a temporary basis to further augment the force of adjusters following a catastrophe. Public adjusters are hired by and work on behalf of property owners to assess damages and help prepare claims. Insurance adjusters are regulated by the states, which have been granted authority by Congress to oversee insurance activities. The federal government retains the authority to regulate insurance, giving primary responsibility for insurance regulation to the states in accordance with the McCarran-Ferguson Act of 1945. State insurance regulators’ oversight includes requirements pertaining to the licensing and training of insurance adjusters. In addition, adjusters that have been licensed or allowed to operate by a state can also be certified as flood adjusters by NFIP to assess flood damages on properties. A property owner who has experienced hurricane damages can initiate a flood insurance claim by contacting the insurance agent of the WYO insurer that sold the NFIP flood policy. The agent relays the claim information to the WYO insurer, which assigns a flood claims adjuster to the case. The adjuster will then inspect the property to determine the damage caused by flooding and the extent to which that damage is covered under the flood policy. To help carry out this work, insurance adjusters commonly use software that organizes the damage information and estimates the repair or replacement costs for such damages. Factors utilized in determining loss estimates include the square footage of the building; the type of building materials; and the cost of materials and repairs at the market rate, which is subject to change. Once the assessment of a damaged property is complete, the adjuster files a report with the WYO insurance company, which reviews the claim and approves or denies it for payment to the policyholder (see fig. 1). Likewise, for wind-related damage claims on hurricane-damaged properties, property owners can contact the insurance agent or company that sold them their property-casualty policy to start the claims process. For some property owners, their property-casualty insurer for wind- related risks is the same company that serves as NFIP’s WYO insurer. In such cases, both the wind and flood insurance policies will be processed by the same insurer. In other cases, where the property-casualty insurer is a different company than the WYO insurer, claims for wind and flood damages will be processed separately by different insurers. Both the insurance industry and NFIP incurred unprecedented storm losses from the 2005 hurricane season. State insurance regulators estimated that property-casualty insurers had paid out approximately $22.4 billion in claims tied to Hurricane Katrina (excluding flood) as of December 31, 2006. However, industry observers estimate that insured losses tied to Hurricane Katrina alone (other than flood) could total more than $40 billion, depending on the outcome of outstanding claims and ongoing litigation. FEMA estimated that NFIP had paid over $15.7 billion in flood insurance claims from Hurricane Katrina as of August 31, 2007, encompassing approximately 99 percent of all flood claims received. As of September 2007, FEMA had about 68 employees, assisted by about 170 contractor employees, to manage and oversee the NFIP and the National Flood Insurance Fund, into which premiums are deposited and claims and expenses are paid. Their management responsibilities include establishing and updating NFIP regulations, analyzing data to determine flood insurance rates, and offering training to insurance agents and adjusters. In addition, FEMA and its program contractor are responsible for monitoring and overseeing the quality of the performance of the WYO insurance companies to assure that NFIP is administered properly. We have recently completed related work highlighting concerns with payment formulas for services rendered by WYO insurers. We are also engaged in other ongoing work focused on reviewing various aspects of the oversight of WYO insurers. Insurance coverage for hurricane damages commonly requires the purchase of multiple insurance policies—a general homeowners policy, an NFIP policy, and in some areas, a special policy for wind damage. But even with these policies, homeowners cannot be certain that all damage resulting from a hurricane will be covered because the areas and limits of coverage differ across policies. Further, because both homeowners and NFIP policies can be serviced by a single WYO insurer, a conflict of interest exists during the adjustment process. Since Hurricane Katrina, legal disputes have been ongoing between property-casualty insurers and policyholders over damage determinations and the interpretation of policy language concerning coverage for damages that may have resulted from both wind and flooding. Property owners cannot currently purchase a single insurance policy for all hurricane-related damages because policies offered by property- casualty insurers generally exclude coverage for flood damage and sometimes may exclude coverage for wind-related damage. Property owners in flood-prone areas frequently have at least two insurance policies—for example, a homeowners policy from a private insurer and a flood insurance policy backed by NFIP. Additionally, on certain properties in coastal areas, private insurers sometimes exclude from homeowners policies coverage for wind-related damage, requiring policyholders to either pay an additional premium for wind-related risks on their primary policy or to purchase a separate supplemental policy for wind-related damages. In such cases, this supplemental coverage is typically provided by a state-sponsored wind insurance pool that has been created to address shortages in the availability of insurance for wind-related risks. Moreover, some property owners may also have excess flood insurance if the value of their home exceeds the coverage limits offered by NFIP. Private property-casualty insurance policies differ from the government- sponsored flood insurance policy in several ways. For example, key differences exist between the level of coverage offered by NFIP and that offered under common homeowners policies. Available coverage for damages under an NFIP policy is limited by law to $250,000 for the structure and $100,000 for contents, although the replacement cost value of some homes exceeds such limits. Generally, private homeowners policies can cover the replacement cost value of the house, and coverage may be obtained to insure personal property, including outside property and personal belongings (e.g., trees, plants, decks, and fences), in contrast to an NFIP policy. Further, while homeowners policies often provide coverage for additional living expenses if a house is rendered uninhabitable, NFIP does not insure policyholders for such coverage, although such expenses may be offset through other disaster assistance provided by FEMA. Property owners do not know in advance whether their insurance policies will cover all damages from a hurricane, because the payments ultimately will depend on the extent to which each policy will cover the damages— that is, whether the damages are determined to be the result of hurricane winds, flooding, or some combination of both. Even property owners that purchase the maximum amount of flood insurance available through NFIP, along with other private insurance for wind-related risks, do not know whether they are completely covered until the insurers’ claims adjusters determine what caused the damage. Given the differences between the coverage offered under flood insurance and the coverage offered by private property-casualty insurance, the damage determinations can be crucial. For example, a homeowner whose house is worth $450,000 may have both a flood insurance policy and wind coverage, but flood insurance covers only up to $250,000 in damages. If damages to the policyholder’s house are severe, and all of it is determined to be from flooding, the property owner may not receive enough compensation to fully rebuild and pay for temporary housing under the terms of the NFIP flood policy. But if all of the damages are determined to have been caused by wind, the homeowner may be able to fully recoup their losses and additional living expenses. Hence, insurance coverage uncertainties can arise when hurricane damages occur. Claims adjustment uncertainties include challenges that can arise in assessing and adjusting damages due to wind and flooding when the evidence of damage at the damage scene is limited or compromised. As a result of the magnitude and severity of damage from Hurricanes Katrina and Rita, evidence of the damaged structures was often limited or compromised. In some cases, buildings were completely destroyed, leaving little except the foundations. Insurance claims adjusters and industry participants we spoke with acknowledged that assessing the cause and extent of damages was more problematic when little evidence of the structure was left.