The outgoing director of the National Flood Insurance Program told members of Congress Tuesday that the organization had lost its ability to properly supervise the companies it hires to manage policies and work with disaster victims.
Brad J. Kieserman, who was appointed in February to reform the government-run insurer, testified before the House Financial Services Committee that outsourcing to more than 80 separate businesses had cut the program off from the homeowners it is intended to serve.
"We have allowed the program to grow to the point where it really lacks adequate governance," said Kieserman, who is stepping down next week for a job at the Red Cross.
His comments, during a hearing on Capitol Hill, were the latest in a series of rebukes aimed at the flood insurance program's partnerships with private companies, which have been accused by superstorm Sandy victims of forging documents to deny claims.
On Tuesday, the U.S. Government Accountability Office confirmed it was conducting an audit of the companies. Kieserman said the study would be critical to help sort out what, if any, incentive the insurers had to underpay flood settlements, which are funded by the government.
"Maybe there is a money connection that we have just not seen," Kieserman said.
The fraud allegations have led to state criminal probes in New York and New Jersey. And the Federal Emergency Management Agency, which runs the flood insurance program, has launched a process to review up to 142,000 claims filed after the 2012 storm.
During Tuesday's testimony, Kieserman estimated that the cost of reviewing those claims would be roughly $40 million -- not including payments to homeowners. That price, he said, was worth it to restore the program's integrity.
The federal government underwrites flood insurance, but it has long hired private companies, including Allstate, Liberty Mutual and others, to sell and manage policies.
Though the government pays for settlements, the private companies are regularly accused of lowballing damage estimates.
Some critics say that's because Washington penalizes companies caught inflating claims. Others contend that the private insurance companies want to avoid setting a precedent for larger payouts for their own wind and fire claims.
Last month, New York Sens. Charles Schumer and Kirsten Gillibrand called on FEMA to scrap the outsourcing system altogether, saying the profit-centric goals of the private insurers have no place in a government program intended to help storm victims rebuild.
Insurance companies deny underpaying claims, saying mistreating policyholders would only drive away customers.
Kieserman, who said that any reforms would still require the flood insurance program to continue working with some private companies, announced his resignation on Monday.
The news of his departure was a blow to lawmakers and others who had hoped he would spearhead reforms. The move, Kieserman told members of Congress, was about money. He has two sons in college. And after 28 years working for the federal government, Kieserman said, money was tight.
"I need to look after my family," he said. "I'm not leaving for any other reason."