Handling of Isabel Claims in Maryland Causes a Storm

Some Maryland victims of tropical storm Isabel are still fuming over the treatment they have received since the storm last September and the controversy has spilled over into the political arena.

A former state insurance commissioner has criticized the current Maryland insurance commissioner for failing to assist victims and the House of Delegates is weighing measures to help people hurt by the storm rebuild or rehabilitate their homes.

According to former insurance commissioner Steven Larsen, some storm victims received conflicting and confusing information, got little help from insurance agents and adjusters and were sometimes coerced into settling for less money than they should have from insurers. Larsen’s findings were included in a report he prepared for Baltimore County on how insurance companies and government agencies dealt with flood victims.

The former insurance commissioner said he disagreed with the current Maryland Insurance Administration’s position that, under federal law, it has no regulatory jurisdiction over private companies that provide flood insurance. He said homeowners who feel they were treated unfairly have nowhere to go for help other than the state insurance administration.

Debbie McKerrow, spokeswoman for Alfred Redmer, Larsen’s successor as insurance commissioner, told the Associated Press that the agency’s legal counsel researched the issue and believes states are pre-empted under federal law from regulating flood insurance.

Redmer defended his agency’s performance. In a written statement, he said that employees of his administration have met with more than 1,200 residents affected by flooding from across the state “to help facilitate the claims handling process.”

Larsen said in his report that investigators were “struck by the tone of desperation, frustration and in some cases hopelessness conveyed by the Isabel victims.” He claimed that only 3 percent of 89 property owners who completed surveys reported they got enough money from flood insurance to cover their losses.

He recommended the state set up an Isabel relief fund to help those whose losses are not covered by insurance or government programs.

Some of the losses were the result of homeowners not buying flood insurance for the contents of their houses, Larsen acknowledged. But even those with coverage for contents got cash value, not replacement value, from their insurers, meaning that “tens of thousands of dollars of losses were not repaid under the best conditions,” he said.

Larsen faulted the performance of some private insurers that provide coverage through the federal program and the agents and adjusters who worked for insurance companies.

Don Cleasby, a vice president of the Property Casualty Insurers Association of America, said, “Given the extent of the losses that occurred, the industry performed very well. But there were instances where improvements could be made.”

One of the lessons learned from Isabel was that agents who are selling flood insurance need “to understand the product better and do need to communicate better to the customers what they are purchasing,” he told Associated Press.

Cleasby said most of Larsen’s recommendations dealt with changes that need to be made by the federal government. “Private insurers do not establish coverage levels. That’s done by the federal government,” he said.

The bill introduced in the House of Delegates includes two programs to help people rebuild or rehabilitate their homes. One would allow property owners to borrow up to 115 percent of the value of the home, with the state ensuring repayment of the amount above 90 percent of the property value. That would cover more than $100 million in loans.

The state also would provide second mortgages to help some owners fill out financing packages to rebuild or repair damaged homes. Owners would not have to repay the principal on the loan until the house is sold.

The two programs will not cover costs of making homes livable again. But sponsors hope that for many of the estimated 300 families still living in trailers or rental housing, the aid will cover the gap between the cost of reconstruction or repairs and the money available to them from bank loans and flood insurance.