Lawmakers To FEMA: Flood Plan Overhaul Is 'Too Little, Too Late' While the Federal Emergency Management Agency vows to make sweeping reforms to the nation's flood insurance program, senators say the program "needs to fundamentally transform."

Lawmakers To FEMA: Flood Plan Overhaul Is 'Too Little, Too Late'

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Insurance companies have been making millions of dollars through the nation's flood insurance program, all this while thousands of homeowners have suffered. That finding by NPR and the PBS series "Frontline" has now led the Federal Emergency Management Agency to make big changes to the program. Several senators say it's not enough. NPR's Laura Sullivan reports.

LAURA SULLIVAN, BYLINE: The changes are the first major revisions to the flood insurance program in 17 years. The program itself is an unusual hybrid model. Private companies get paid to manage flood policies, but taxpayers bear the risk and, for the most part, pay all the claims. That's worked out well for insurance companies. NPR and "Frontline" found that companies make hundreds of millions of dollars every year from the program, which is now $23 billion in debt.

And after Sandy, at a time when tens of thousands of homeowners alleged the insurance companies were underpaying them, the companies together brought in more than $400 million dollars in profit before taxes. FEMA says it's making significant changes to its contracts and oversight of the flood insurance program. Roy Wright runs the program.

ROY WRIGHT: These are the right steps to build out this foundation and turn this program around. And we have a lot more work to go.

SULLIVAN: Wright says FEMA is now carefully analyzing the profit structure of the companies and will be making more changes in the months to come.

WRIGHT: This sets the groundwork by which I can have a true, standards-based approach to manage the companies and ensure that policyholders get everything that they're entitled to.

SULLIVAN: But Senator Bob Menendez, a Democrat whose New Jersey constituents were badly affected by the storm, is not impressed.

BOB MENENDEZ: It is too little, too late. FEMA has basically turned over this program to the private insurance companies.

SULLIVAN: Menendez and other lawmakers say they are now considering ending the flood insurance program. They say flood insurance could go private, like auto insurance, or the program could come entirely in-house to FEMA, like it once was in the 1970s. FEMA still runs a small direct flood insurance business. Menendez says even with the new changes, the program is unlikely to be in the best interest of taxpayers or homeowners.

MENENDEZ: It needs to fundamentally transform. And if it cannot do so, then we have to consider whether legislatively we scrap the entire private insurance company model.

SULLIVAN: Senator Cory Booker, also from New Jersey, says he agrees.

CORY BOOKER: The private insurance companies had a serious lack of oversight, perverse incentives, and I think we have a long way to go to really fix this program for the long-term.

SULLIVAN: Booker says at the end of the day, it may not be worth salvaging.

BOOKER: Folks after the storm had suffered enough. For folks to have to suffer in the way they have since is just unconscionable.

SULLIVAN: Among the reforms, Wright says there will be an immediate change to FEMA's appeals process. NPR and "Frontline" found the agency was sending homeowner appeals to the insurance companies and having the insurance companies review them and write a response. Wright says he is also altering one of the agency's controversial practices - FEMA pays all the legal fees of the insurance companies. It does not pay the legal bills of homeowners.

Homeowners say that can lead to some cases dragging out. In one instance, FEMA paid $87,000 just for pretrial motions in a case that involved a homeowner who was asking for $25,000. Wright says he is putting someone in charge of overseeing how FEMA handles the insurance company's legal bills.

WRIGHT: As we go forward, there will be FEMA lawyers rather than outside counsel that are making the final decisions about our litigation strategies.

SULLIVAN: The insurance companies' advocacy group, the Insurance Information Institute, says the companies are supportive of any reforms that are deemed improvements to the program. In a statement, the Institute's president, Robert Hartwig, said the companies will, quote, "continue to provide high-quality service to homeowners." Senators Booker and Menendez said they, too, hope that will be the case. Laura Sullivan, NPR News.

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