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Citizens' $60 million no-bid contract raises questions

The board of state-run Citizens Property Insurance Corp. approved what is likely the largest no-bid contract in its history last month, awarding a $60 million deal to a software company in Jacksonville.

The contract gives Inspection Depot Inc. responsibility for coordinating reinspections of as many as 400,000 of the 1 million homes insured by Citizens, the state's largest property insurer.

The goal: to ensure that homeowners qualify for the more than $700 million in wind mitigation credits they receive annually. And to reduce those credits if a second inspection deems them unwarranted.

But Citizens' shot-gun hire has raised eyebrows around the state, especially from competitors who challenge the insurer's claim that Inspection Depot has a unique ability to pull off the job.

Interviews with Citizens' officials reveal that the staff did only a cursory check of Inspection Depot's capability. And they were unaware of the owner's spotty track record doing wind mitigation inspections for a previous state program.

Citizens' staff and board had been discussing the idea of verifying its wind mitigation credits for nearly a year.

Hundreds of thousands of Florida homeowners had received discounts on their insurance premiums for hardening their homes against hurricanes. But a growing number of insurers were concerned that unscrupulous or poorly trained inspectors issued undeserved discounts, giving homeowners a false sense of security and siphoning revenue from carriers.

The issue took on unexpected urgency at Citizens when the $60 million contract appeared on the agenda at the Oct. 23 meeting.

Board member Carlos LaCasa tried to restrict the emergency funding to $150,000 for a pilot program, while opening the rest to competitive bid. With no support from his colleagues, the $60 million contract passed 4 to 1.

A news release announcing the emergency plan did not mention the contract total or the identity of the vendor, who also owns a home inspection business in Jacksonville. In a post-meeting e-mail to a St. Petersburg Times' reporter, a Citizens' spokesman said "the initial goal is to have approximately 500 inspections completed and the cost will be $150 per inspection."

But as word seeped out of the potential scope of the project — and the haste with which it had been approved — grumbling began among competitors who had been jockeying for Citizens' reinspection business.

Chris Thomas, owner of one of nine companies certified to conduct wind mitigation inspections under a now defunct state program, said, "We just want transparency with Citizens. I'd say any program of this size should be put out for competitive bid."

Meanwhile Inspection Depot's chief executive, Michael Rowan, said in a written statement that his company won the Citizens' contract because "we are the best suited, hands down."

"We were among the first to recognize the potential problems in the industry and . . .wanted to do something about it," he said.

• • •

Citizens' executives defended their decision to move quickly on the contract, saying delays would cost dollars. They cited a public presentation in August by Inspection Depot's Rowan, claiming that 7,000 reinspections his firm conducted for another insurer revealed an error rate of 68 to 78 percent.

"If that percentage error is extrapolated to our $700 million in credits, that's a huge amount of premium credits that should not be given," said Susanne Murphy, Citizens' executive vice president. "We decided it was no longer an issue that could be delayed through a competitive solicitation process that would take six to nine months to complete. Potentially hundreds of millions of dollars are at stake."

Paul Palumbo, senior vice president of underwriting, said Citizens is buying access to software that would take time and money to replicate. "We believe that the emergency exists and that this contract will provide us with an instant infrastructure," he said. "Using this approach will give us a consistent mechanism to deliver the information we need with the proper documentation."

Palumbo said he reviewed Inspection Depot's work with two private insurers, Magnolia and Security First, and visited its headquarters. He said the vendor was unique among wind mitigation companies because of its software and ability to manage data.

"Other companies have been solely focused on performing inspections," Palumbo said. "They don't advertise any service like Inspection Depot provides."

But several of the companies that participated in the state's wind mitigation program said they could have done the work if given a chance.

Phillip Nation, vice president of JVI Inspection Division in Lake Mary, said his company performed 50,000 inspections for the state.

"Handling large quantities of numbers is actually our specialty," he said.

• • •

Rowan at Inspection Depot declined to disclose the size of his privately owned company, its revenues or other customer contracts. The company's software has been in development for 18 months, he wrote, and the Citizens' contract will be its biggest ever.

"But we have no concerns whatsoever, because of the technology we have developed, its scalability and its ability to enable any number of inspection companies and field inspectors to use the program," Rowan said.

Rowan also declined to discuss the size and revenues of his home inspection company, AmeriPro. Angry about the no-bid contract, other experienced home inspection businesses in the state feared Rowan would steer Citizen's massive reinspection project to his affiliate. But last week, Citizens' officials said that would not happen.

Palumbo said Rowan's inspection subsidiary will be used to reinspect the first group of 500 homes. But Rowan's employees will be prohibited from doing inspections when the program is rolled out to as many as 400,000 homes early next year. Inspection Depot will delegate that work — rooting through attics to check wall connections and climbing around roofs taking pictures — to inspectors who meet Citizens' standards statewide.

"We want to avoid any perception of conflict of interest," said Palumbo, who added that Inspection Depot will be acting strictly as project manager during the larger reinspection effort. "This program will be available to any qualified inspector, and we will ensure the work is allocated fairly."

Though Rowan's home inspection business participated in My Safe Florida Home, the state wind mitigation program, Citizens' officials said they did not review AmeriPro's record. Anecdotally, they said they were told by a former program staffer that AmeriPro had done good work.

But according to quality assurance reports from the state program, in 2007 AmeriPro received a C rating and was dropped, along with four other companies, after six months. AmeriPro qualified to rejoin the program in 2008.

In late June, the state compared a representative sample of each companies' inspections to a quality assurance review, citing the percent of times the two differed. AmeriPro's inspections differed more often than all but one of the nine inspection companies. Nina Banister, a spokeswoman for the program, said, "It does not necessarily mean there was an error. It means there was a discrepancy in what they (QA) were seeing."

A Citizens' spokesman said the differences in quality among the companies in the My Safe Florida Home program were minimal and the issue is moot since AmeriPro will have limited involvement in the Citizens' re-inspections.

Palumbo also emphasized that Inspection Depot's share of the $60 million contract will be limited to a management fee of $1 million to $3 million for each year of what could be a three-year contract. Subcontractors would receive the rest of the inspection fee, he said.

Inspection Depot will, however, be permitted to charge field inspectors application or software licensing fees. Rowan estimated application costs could range from $500 to $600 per inspector.

Competitors, hungry for any business, say the Citizens' contract will make Inspection Depot's software an industry standard, giving the company enormous leverage with other carriers.

Allan Katz, the only Citizens' board member other than LaCasa to question the deal, also said the amount of money going to Inspection Depot is irrelevant.

"The economic power this contract gives Inspection Depot is huge," said Katz, who questioned the budget item but left the Citizens' meeting before the vote. "I have no reason but to believe the staff decided on this company because of its qualifications. But we need people to believe it's a straight choice."

Referring to allegations of bribes and kickbacks at Citizens in years past, Katz commended the current leadership but said it still needed to work on the procurement process.

"The impact of these contracts have a bigger ripple effect on the economy because Citizens is no longer the residual (insurance) market," he said. "We are the market."

Times researcher Will Gorham contributed to this report. Kris Hundley can be reached at [email protected] or (727)892-2996.


How Citizens' reinspections will work

Once Citizens alerts a policyholder that it is reviewing his or her wind mitigation credits, Inspection Depot will schedule the re-inspection, gather the results from the field, then use its software to compare the new results with the original inspection. Discrepancies could result in loss of all or part of the policyholder's credits. Any impact on credits would take place at policy renewal time, and homeowners would not be responsible for repaying any credits incorrectly granted in the past.

A homeowner who disputes the reinspection would have the right to pay for yet another inspection, which would then be reviewed by Citizens. If the homeowners' documentation prevails, they would be reimbursed the cost of the inspection.

Citizens' $60 million no-bid contract raises questions 11/13/09 [Last modified: Friday, November 13, 2009 11:00pm]
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