A committee charged with evaluating Florida's wind mitigation discounts says the program has been poorly implemented, rife with fraud and a contributor to losses in the state's insurance market.
In the draft of a report to be delivered to the Legislature on Feb. 1, the Commission on Hurricane Loss Projection Methodology points out problems with everything from the way the mitigation credits are structured to abuse and inefficiencies in the home inspection process.
"There are no audit requirements; there is very little accountability," a draft in late January said. "There is an indication of substantial fraudulent behavior,"
But mindful of the popularity of the program with policyholders, many of whom earned discounts without doing a thing to their homes, the panel offers recommendations for improvements. Among them:
• Making residential inspections mandatory, not voluntary, with periodic reinspections.
• Revamp the credit system so weaker structures would see premium surcharges.
• Establishing an "independent inspection organization" to oversee and administer the inspection process.
• Making it a felony to engage in fraudulent inspection activities.
During three public meetings last year, the committee heard about how a system which was supposed to create stronger homes and a more stable insurance market had backfired. While weak homes got no credits, the strongest structures could earn discounts as high as 80 percent of premium. Some inspectors merely drove by homes or took information over the phone before submitting mitigation forms. Other companies guaranteed their inspection would result in discounts or the service was free.
Some insurers, including state-run Citizens Property Insurance Corp., have started reinspecting homes to verify credits, a move the commission encourages. As the Florida's largest insurer, Citizens is losing $740 million a year in premium revenues due to the discounts. According to the Florida Association of Insurance Agents, reinspections by other insurers have revealed an error rate as high as 80 percent.
The commission heard insurers blame wind mitigation credits for underwriting losses and lower surpluses, even though the state has had no hurricanes for the past four years.
"We don't see direct causality but there are indications of problems," said Randy Drumm, associate professor risk and insurance at Florida State University and chairman of the commission. "This was a lot more complex issue than it seemed on its face."
Kris Hundley can be reached at firstname.lastname@example.org or (727)892-2996.