That’s what happens when there’s a monopoly, said Mr. Poulton, the Lloyd’s underwriter.
Over the years, he said, he has noticed that his customers are buying Lloyd’s earthquake insurance because it includes flood coverage. They do not like the government’s flood insurance because payouts are capped at $250,000 and have other limits.
Such as basements.
Matt Herr of Superior Flood in Brighton, Colo., another underwriter for Lloyd’s, recalled a client whose handicapped son lived in a “sunken living room,” eight inches lower than the rest of the house. When the neighborhood flooded, $22,000 of medical equipment was ruined. The government refused to pay, calling the living room a basement. Its policies exclude basements.
While the government program insures more than five million homeowners, that is just a small fraction of the number of people who live on floodplains.
Mr. Poulton researched the flood insurance program and eventually found a public report that explained how its pricing worked. The program, he learned, was not using the detailed, house-by-house information on flood risk that is available through satellite imagery and other sources.
That’s because Congress gave the program a legal mandate to work with communities, not individual households. So the program was surveying floodplains, then calculating an “average annual loss” for all the houses there. Its insurance rates were based on those averages.
“It undercharges 50 percent of its risks, and it overcharges 50 percent of its risks, on an equal weighting,” Mr. Poulton said.
Offer a better deal to the households with a below-average risk of flooding — a policy whose price reflects their lower risk — and they will jump at the opportunity to save money on premiums, he said.
But the government does not readily divulge all of its historical claims data, so insurers cannot comb through them and analyze the risks.
“What we know is snippets,” said Martin Hartley, chief operating officer of Pure Insurance in White Plains, which offers supplementary flood insurance to homeowners who want more than the government’s $250,000 coverage.
Also, the government relies on mortgage lenders to enforce the rule requiring at-risk homeowners to buy flood insurance. Mr. Poulton said he found that FEMA officials had told lenders that, in effect, they shouldn’t trust private insurance.
He went to Washington to complain to program officials.
“We told them their guidelines were bad, bad for consumers,” he said. “We said: ‘They’re only good for you. You’ve got to change them.’ They said: ‘We don’t answer to you. We answer to Congress.’ We’ve been lobbying ever since.”
No one paid much attention until after Sandy, when the program fell deeper into debt with the Treasury. To help fill that hole, Congress in 2012 approved big increases in its premiums. But that caused an uproar when people got their bills. Two years later, Congress rescinded much of the increase.
Then came this season’s hurricanes and the $16 billion bailout.
The Office of Management and Budget sent Congress an updated list of proposals in October, including measures that would remove certain obstacles to private-sector competition. Its plan would open up the data trove to potential competitors and direct mortgage lenders to accept private flood-insurance policies. It would also revoke an agreement that the program’s contractors — including about 70 insurance companies — must currently sign, promising not to compete against the government program.
Some members of Congress — including Democrats like Senators Chuck Schumer of New York and Robert Menendez of New Jersey, whose states have significant flood exposure and bad memories of Hurricane Sandy — are resisting. They say bringing in private insurers would make the program’s troubles worse, because the insurers would cherry-pick the most profitable customers and leave the government with all the “severe repetitive-loss properties.”
Mr. Poulton did not dispute that. In fact, he said that was exactly what should happen.
“We need the N.F.I.P. to be a full participant in this as the insurer of last resort,” he said. That means it would take the high-risk properties that the private insurers did not want, acting like the state-run insurance pools for especially risky drivers.
Some lawyers for aggrieved policyholders think a shake-up might improve things, if it brought accountability.
August J. Matteis, who is representing Mr. Clutter in his lawsuit, said the insurance program had been so criticized by Congress for its borrowing that by the time Sandy blew in, it had instructed contractors to hold the line on claims. They did so with a vengeance. Thousands of people with flood damage from Sandy ended up disputing the government’s handling of their claims.
Long Beach, Mr. Clutter’s town, is on a barrier island off the southern shore of Long Island. When Sandy sent several feet of floodwater washing over it, the piers supporting the Clutter family’s foundation collapsed. Upstairs, floors buckled. Walls cracked.
Mr. Clutter called Wright National Flood Insurance, the Florida company that administers his policy. Wright sent an independent adjuster, who took photos with captions like “structural foundation wall has been washed in” and “piers have collapsed — no longer supporting risk.”
But then, Wright sent a structural engineer from U.S. Forensic of Louisiana who declared that Sandy had not caused the damage.
In 2015, Mr. Clutter happened to catch a “60 Minutes” report on the aftermath of Sandy. It included accusations that U.S. Forensic had falsified engineering reports on other people’s houses.
There were so many disputed claims and questionable inspections, in fact, that the government opened an unusual review process for Sandy victims. Mr. Clutter went through it, but said the government’s offer fell far short of his repair costs. He sued FEMA and Wright Flood Insurance in August.