When Superstorm Sandy blew down New Jersey’s door on that ferocious night in October 2012, making one hell of a mess, residents distressed by severe property damage had no reason to anticipate the flood of agony that would thwart rebuilding their dreams. They had flood insurance.  The future wasn’t so bleak.

Nearly three years after the storm, which dismantled coastal towns in New Jersey and New York, the future for many has yet to arrive. Thousands are still displaced, unable to rebuild or repair, stuck in a morass of what homeowners and advocacy groups have long called bumbling bureaucracy, governmental indifference on the state and federal levels, and stonewalling insurance companies that have denied claims for incredulous reasons or issued settlement checks of jaw-dropping paucity.

“People have used up their personal assets, they’ve used their kids’ college money, charged up all their credit cards,” said Sue Marticek, executive director of the Ocean County Long-Term Recovery Group, a non-profit coalition that aids Sandy victims. “They’ve had to take out construction loans, had to reduce the size of their new home. Those examples are the fortunate ones. They’re the ones who got back to normal.”

Marticek was addressing fellow members of the federal Sandy Task Force during a meeting just days before a momentous event—the Federal Emergency Management Agency’s mass mailing in May of letters to nearly 143,000 policyholders in the National Flood Insurance Program (NFIP) who’d received settlement checks for Sandy damage claims. FEMA will be busy this summer reviewing settlements for policyholders—about 74,000 are in New Jersey—who believe they were shortchanged by the appraisal process or, worst of all, victimized by a deceptive plot to underpay—or not pay—damage claims.

The agency had been slow to react to rumblings as early as 2013 that phony engineering reports and deceitful insurance companies were victimizing Sandy claimants, often by attributing structural damage to factors other than flooding. But a revealing “60 Minutes” investigation that aired in March jolted the agency to action. The report painted a not-so-pretty picture of callous insurers taking advantage of distraught flood victims, all while FEMA’s head seemingly was buried in beachfront sand.

Days later, the shockwaves spurred the resignation of David Miller, head of NFIP since 2011. Investigations are ongoing in New York and New Jersey, specifically to unearth any criminal force that tainted the claims process.

craig fugate (fema photo)

FEMA administrator Craig Fugate supports reform of the National Flood Insurance Program.

“The arguments out there get into a lot of nuances,” said FEMA administrator Craig Fugate, a task force member. “Bottom-line issue, we pay what we owe, that’s what policies are designed to do. There should be no incentives in the program not to do that. If we think there’s actually fraud, which has been some of the allegations, there’s a [legal] process for that.”

U.S. Sen. Robert Menendez (D-NJ) has his own woes at the moment, burdened by a federal corruption indictment that accuses him of special treatment for a wealthy donor. But Menendez pushes on as a Sandy crusader and leader of the new task force, joined by Senate colleague Cory Booker and two New York Democrats, Senators Kirsten Gillibrand and Charles Schumer, in a campaign to deliver relief to Sandy policyholders and restructure the flood-insurance program.

“We’re trying to get to the bottom of what went wrong,” said Steven Sandberg, press secretary for Menendez. “It’s clear that NFIP failed policyholders who paid into the system. It was apparent to us because constituents were calling our office and explaining a pattern of lowballing. They were getting cents on the dollar of what they really deserved for their damages.”

But there’s also another test of Sandy victims’ pain threshold in New Jersey. It’s known as the state’s Reconstruction, Rehabilitation, Elevation and Mitigation program, or RREM.

Sandy came ashore in Brigantine just after eight on that Monday night—Oct. 29, 2012—and its 85-mph winds and rain cut a nasty swath northward, especially decimating Monmouth and Ocean counties, while claiming 34 lives in the state. The storm caused $37 billion in property damage and economic losses, damaging or destroying about 325,000 housing and rental units across the state, according to a Rutgers University study of Sandy’s impact released on the one-year anniversary.

It was the perfect storm for Gov. Chris Christie. He was the comforting presence, hugging teary homeowners amid the debris of their toothpick coastal communities. He extolled gritty New Jersey as “stronger than the storm.” He vowed that homeowners would rebuild with the help of federal funds allocated to the RREM program.

But that program, much like the National Flood Insurance Program administered by FEMA, has caused angst for Sandy victims. Although it qualifies homeowners for up to $150,000 for rebuilding costs not covered by FEMA or insurance, weary applicants have implored Christie in past public meetings to help cut the red tape of complex regulations and long delays within what many have called a disorganized program.

Two months ago, an update released by the state Department of Community Affairs, which oversees RREM disbursements, acknowledged that of 8,300 homeowners in the program, only about 900 had finished construction and returned to their homes, with 6,500 others currently working on theirs.

RREM has received about $2.5 billion in federal aid, according to the department. Nearly $1.6 billion had been distributed to date for statewide Sandy rebuilding projects.

“The State of New Jersey has brought relief to thousands of its homeowners, renters and businesses within the last two years,” said department spokeswoman Lisa Ryan, “while at the same time demonstrating its commitment to compliance with federal requirements.”

Such rhetoric oozes optimism, yet it’s the aid workers on the street, like Ocean County’s Marticek, who still see the hardships of Sandy survivors tangled in bureaucracy while struggling to pay mortgages on homes that remain unlivable.

During that April 28 task force meeting in Washington, Marticek, whose coalition encompasses 80 non-profit organizations, told Menendez and others that the state’s non-profits must be respected partners in FEMA’s claims review and other aspects of Sandy recovery, specifically because, as she put it, government and business are not true advocates of the people.

The FEMA process, she emphasized, must be completed swiftly and simply.

“Our homeowners cannot take another level of bureaucracy,” Marticek said, noting that Ocean County has 24,000 FEMA-verified damaged properties. “Our homeowners, for every six months that they are out of their home, are spending an extra $10,000 to $15,000 out of their own pockets.”

The financial assistance provided by the Ocean County Long-Term Recovery Group, she lamented, has often supported people’s survival as they navigate government programs. She’d rather see it restore their damaged homes.

“They have additional living expenses. We have given out almost $4 million. I would love to say the money has gone to sheetrock and hammers and nails,” Marticek said, “but unfortunately a majority of that funding has gone to pay rental expenses, mortgages and moving expenses.”

In recent months, Gov. Christie, once that comforting presence after the storm, has become curt and impatient with Sandy homeowners feeling frazzled by RREM. It’s the fault of the federal government and a preponderance of paperwork tied to doling out the money, he has told them.

The love that once flowed has ebbed these days, a strained relationship that was evident when about 80 Sandy victims gathered in Trenton in mid-May for a RREM protest, with some speakers chiding Christie for seeming too preoccupied with his potential White House run.

Their travails, however, are likely to be overshadowed by the storm whipping around FEMA and the National Flood Insurance Program. And it’s shaping up to be a big one.

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In its letter offering case reviews to dissatisfied Sandy policyholders, FEMA has pledged what critics have been demanding—a thorough review, decisions within 90 days, checks issued to homeowners who deserve higher settlements, and a transparent process that will give appeals to a neutral, third-party arbiter.

In New Jersey, according to NFIP, the average claim payment was $61,000. Sandberg, the aide to Menendez, said it’s probable that many of those policyholders received fair settlements under provisions of their policies, with no reason to suspect attempts to falsify damage appraisals.

“It’s the ones who did not get fair settlements,” he said. “You should not have to hire a lawyer and sue to get the settlement you deserve. You should not be out of your home, have your kids displaced, have drained your own savings for two and a half years, to finally get what you deserve.”

For 32 years, Christopher Green has battled insurance companies as a public adjuster hired by policyholders to settle damage claims. But he’s lukewarm to flood work—it’s time-consuming and complex, with burdensome federal layers—and he takes a pragmatic view of this era of precarious life near the beach, especially as hurricane seasons grow more dicey.

sandy flood photo Liz Roll fema

Sandy flooded communities along the Jersey coast on Oct. 29, 2012.

“With flood insurance, the fact is that most people aren’t going to be happy [with settlements],” said Green, owner of Richard Green & Son Public Adjusters in Lambertville, NJ “A lot of them have a high level of expectation, and they’re going to be disappointed. The policies are very different from homeowner policies. But if you want to live on the beach and look at the ocean, you’re going to be lucky to get insurance. There’s a risk you must be willing to accept.”

Two years ago, Green wrapped up satisfactory insurance settlements for four New Jersey homes hit hard by Sandy. Two were in affluent coastal towns, Mantoloking and Monmouth Beach. One was a small home that he and his wife have in Ocean City, a home flooded by three feet of water, and there’s still the need for first-floor restoration and a nine-foot elevation of the structure.

All of the settlements were achieved within a reasonable time, Green said. There were no problems with engineer reports or dollar figures. But he has no doubt that a lot of Sandy policyholders have endured brutal times with insurance companies.

“You really can’t call this anything other than bad faith,” Green said. “If it turns out that an insurance company altered [engineering] reports to minimize what they should pay, punitive awards should be considered. Insurance companies do not pay engineers to help them pay a claim. They pay to help deny a claim or defend their payment. That’s been my experience.”

There is consensus from nearly all involved—from victims advocates and non-profit aid groups, legislators and industry associations, even from FEMA itself—that Sandy has emphasized the need to overhaul the National Flood Insurance Program.

NFIP has 5.3 million policyholders nationwide. Coverage can be purchased through the program—a service called NFIP Direct—but about 80 percent of the policies are bought from insurance companies recruited by NFIP for a component called Write Your Own. These WYO insurers—about 83 companies have contracts with NFIP—sell and service flood policies for a decent cut of the action, about $1 billion a year, according to Sandy Task Force figures.

The insurers receive 30 percent of the premium, along with agent commissions and company expenses. The companies process claims but aren’t on the hook for damage payments. NFIP pays policyholders. Any expenses related to processing a claim—hiring an engineering firm for a structural inspection, for example—NFIP pays them. If a displeased policyholder sues the insurer, NFIP pays the company’s attorney fees.

Amy Bach says these insurers have a good thing going. She finds it a bothersome aspect that demands scrutiny as officials turn to NFIP reforms.

“The problem with NFIP is not just one thing. It’s many things,” said Bach, executive director of United Policyholders, a San Francisco non-profit that battles for insurance customers and has been immersed in the Sandy issue. “NFIP needs to be restored to its original purpose. It was never intended to be a commercial enterprise, but it became a commercial enterprise.”

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Congress created the program in 1968, its mission to provide affordable insurance and protect properties from coastal floods. Policies provide a maximum of $250,000 coverage for a single-family home, plus $100,000 for its contents. Although the average annual premium is $650, according to NFIP, the charge can soar to $2,000 or more for properties in locations with greater flood risk.

NFIP had been conceived as a self-sustaining program, paying insurance claims with policy premiums, but also able to get U.S. Treasury loans—repaid with interest—during times of big disaster losses.

But the flood-insurance program is drowning in debt. In an overview report earlier this year, the U.S. Government Accountability Office said that, as of Dec. 31, 2014, FEMA owed the treasury $23 billion for NFIP loans. A $1 billion principal payment at year’s end had been FEMA’s first since 2010.

On April 1, NFIP instituted new rates that could increase premiums by as much as 25 percent for property owners in high-risk flood zones. Proceeds also will bolster the program’s finances, yet GAO, as noted in its report, considers it unlikely that NFIP can generate sufficient revenue to pay the debt.

This fiscal tsunami exists because of the 2005 hurricane season. It was a record back-breaker for NFIP, when Hurricanes Rita, Wilma and Katrina required nearly $24 billion in insurance payouts. Katrina, the costliest hurricane ever, accounted for $22 billion.

Sandy has added about $8.1 billion to the tab.

Bach considers it sheer folly to believe that discussions of meaningful NFIP changes can begin unless Congress devises a funding plan.

“They must drop the debt,” she said. “I’m not letting the engineers off the hook. I’m not letting the WYOs off the hook. But this is in the lap of Congress. You can’t underfund a program and expect it to work. If you make people buy this product, if you mandate it because you’re trying to control flood risk, then you cannot give all the profit to the private (insurance) sector and leave people holding the bag.”

Bach, an attorney who co-founded United Policyholders in 1991, has little love for FEMA or NFIP. Even now she is butting heads with the agencies in her push for a revised claim-appeal process that offers policyholders more transparency, access to key documents and reviews by a third party with no FEMA connection.

Just the same, Bach couldn’t help feeling a twinge of empathy for NFIP upon hearing a startling fact while a guest speaker at a Washington, D.C., trade convention in May.

“Do you know how many employees NFIP has?” she asked. “Seventy-five employees. And they have five-million policyholders!”

Amid current suspicions of shady dealings in engineering reports and insurance payments, it’s logical to seek a villain, but that’s not clear at the moment. From claims that FEMA’s exerting pressure to control insurance payouts, to a belief that the WYO insurers have too much clout when appraising damages and calculating settlements, the theories abound out there.

There is one, however, that has gained broad agreement. The GAO report emphasizes it. The Sandy Task Force and Bach’s advocacy group emphasize it.

And FEMA’s leadership doesn’t dispute it.

The agency agrees that it must undertake stronger oversight of NFIP operations and the WYO insurers that calculate how much a claim payment should be.

FEMA commenced that two months ago when it detailed a broad initiative to reform NFIP’s claims-and-appeals process and, in particular, scrutinize operations of the insurers and approve the use of engineering firms for damage inspections.

On that “60 Minutes” report in March, Brad Kieserman, FEMA’s deputy administrator for insurance, said he’d “seen evidence” of claims fraud in prior weeks but didn’t offer specifics. At this point, he says, there’s nothing to indicate that the WYO insurers had done anything underhanded.

“There is no evidence produced yet that I have seen that the insurance companies have committed fraud,” Kieserman said. “I have seen evidence that concerns me deeply about what the engineering firms have done and I have referred that to the authorities doing criminal investigations in which we are fully cooperating.”

The Property Casualty Insurers Association of America says fingers shouldn’t be pointed at insurers. They adjust claims to rigid standards established by FEMA, said Tom Glassic, vice president of policy and government relations for the national trade group.

But he also notes that tackling heavy disaster caseloads amid the pressure of getting swift claims checks to storm victims can produce faulty numbers.

“There can be errors. Mistakes are made,” said Glassic. “Does that mean WYOs are complacent? No. The WYOs usually are the first ones on the ground with victims. They’re people too. They want policyholders to be happy.”