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A Times Editorial

A bad deal from Citizens

Florida's state-run insurer absolutely should be rooting out fraud and incompetence that is inflating hurricane-mitigation discounts for homeowners. But Citizens Property Insurance Corp.'s board of directors should not award a no-bid $60 million contract to a private vendor who has not tackled a project of this size. The board should reconsider and seek competitive bids.

Citizens' action, which drew only one dissenting vote from former state Rep. Carlos Lacasa of Miami, is an affront to all Florida insurance policyholders. All policyholders are on the hook whenever the state-backed entity's coffers run dry, and they already are paying assessments by Citizens for the 2004 and 2005 hurricanes. Plus, Citizens' plan to reinspect up to 400,000 of the 1 million homes it insures will set an industry precedent. There is no guarantee, without a competitive bidding process, that Citizens has struck the best deal for itself and, by extension, the entire industry.

At issue is the $700 million in mitigation discounts Citizens customers are claiming each year under a state program that encouraged homeowners to harden their homes against hurricanes. Anecdotal evidence suggests that the program's primary function — providing free inspections to homeowners to document mitigation efforts for the insurance discounts — also spawned significant cases of fraud and shoddy inspection work.

One private insurer who assumed Citizens policies found, upon reinspection, that more than 50 percent of homes were receiving discounts for improvements that didn't exist, Citizens staff have said. When the private insurer, Magnolia, told customers it wouldn't honor the discounts, many returned to Citizens, where they still qualified for discounts and a lower premium. The Citizens staff recommended the company also begin reinspecting.

That is not a bad plan, if executed properly. Even at $60 million, the program could pay for itself in one year. But Citizens has already failed in the execution. At the Oct. 23 board meeting, with little notice, the Citizens staff won authority to negotiate a no-bid deal for the reinspection program with Inspection Depot Inc. The Jacksonville software company's owner, Michael Rowan, had another company, AmeriPro, that participated in the initial state inspection program but was dropped because of its quality assurance rating. Rowan has acknowledged he has never tackled a project this size, but he and Citizens staff contend Inspection Depot has unique software perfect for what Florida's largest insurer needs.

Lacasa, along with another board member who left before the vote, Allan Katz of Tallahassee, unsuccessfully argued that Citizens needed to seek competing offers. The rushed deal is already showing signs it should be reconsidered. Only last week — after competitors expressed concerns that Inspection Depot would funnel all reinspections to Rowan's AmeriPro — did Citizens announce it would limit AmeriPro to 500 homes in the initial phase of the program.

That's not enough. The effort Citizens is undertaking will set the standard for Florida's insurance industry, where private insurers are also contemplating widespread reinspection programs. Whoever oversees Citizens' program will enjoy a competitive advantage for that work as well — all the more reason Citizens must insure it is choosing the best solution at the best price. That requires bids from more than a single vendor.

A bad deal from Citizens 11/17/09 [Last modified: Tuesday, November 17, 2009 7:22pm]
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