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Inspections generating controversy
THE ISSUE: Homeowners see rates increase after Citizens insurance company inspections.
OUR OPINION: Process should be fair to both homeowners and insurance company.
The Florida insurance marketplace has been a mess since Hurricane Andrew blew through in 2002 and created multibillion-dollar losses for insurance companies doing business in the state.
These losses led to many major insurers either pulling out of the state or creating Florida-only insurance subsidiaries, called “pups,” that operated financially independently from the parent company. A decade after Andrew, the state-backed Citizens Property and Insurance Corp. was created as the insurer of last resort to assure that insurance would be available to all residents of the state.
Today, Citizens is the state’s largest property insurance company, with more than 1.4 million policyholders, and as a state-backed organization, it can assess every policyholder in the state fees to pay off deficits it incurs as a result of major storms.
The company has recently begun a series of steps intended to reduce its financial exposure and to turn some of its policies over to private insurers.
One of the more controversial programs is a reinspection program that has resulted in the inspection of roofs and windows of more than 158,000 buildings over the last two years, often leading to significant rate increases and/or requiring major expenses to maintain coverage.
This year, Citizens has begun a major inspection program to validate that hurricane mitigation credits given to homeowners are justified. According to news reports, the insurance company is reinspecting all buildings that qualify for more than $650 in mitigation credits.
While all insurance companies are allowed to inspect buildings to assure that mitigation credits are justified, critics of Citizens’ aggressive program say that it is partly driven by a desire to drop clients and/or to get increases in rates that exceed what state insurance regulators will allow through direct rate increases.
For example, according to the Sarasota Herald-Tribune, Citizens is conducting 209,000 mitigation credit inspections in 2012. So far, policyholders are getting stuck with larger bills 62 percent of the time, with an average premium increase of $600 per year.
According to the report, this represents a 23 percent rate increase for homeowners, although the company is restricted to 10 percent annual increases through normal rate-setting.
Since insurance is a shared-risk proposition, it is reasonable for the company to fairly determine if rates are appropriate for the risk taken by the insurer and if mitigation credits are due. At the same time, Citizens is the insurer of last resort in the state. For this reason alone, the company needs to ensure that its programs are fair to property owners as well as the insurance company, and that the inspection program is not used as a way to simply rid the company of clients or to get a back-door rate increase beyond what state insurance regulators would otherwise allow.
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MFSH
Some of these homes received grants from the My Florida Safe Homes program (Fla. Statute 215.5586, funding expired June 30, 2009), to inspect and retrofit homes and receive insurance discounts. An independent assessment concluded some 32,000 homes (value less than $300K) received grants from the $93 million state appropriation. Evidently there must have been some fraud as re-inspections indicate that mitigation was not done in many cases where discounts were claimed. The 2009 assessment recommends the state continue to certify inspectors and also to require mitigation inspections on all homes at sale. (Mitigation discounts should apply to all structures at risk, not just owner-occupied homes below a certain value.) They conclude that would greatly improve data for risk assessment of all Florida homes by insurance (and re/insurance) companies and likely reduce premiums so that low risk homes don't pay more for damage to high risk homes. Currently, a homeowner can voluntarily pay for an inspection by an inspector who was formerly certified, submit it to the insurance company, do the recommended mitigation retrofits, pay for a re-inspection, and receive a discount on the wind portion of insurance. However, in many cases this is not cost-effective. The state and insurance companies should do more research and development to make both voluntary incentives and state grants cost-effective, for example cheaper and better garage door retrofits made locally. Finally, the wind portion of insurance should reflect actual risk from wind such as tornadoes or derechoes, not just theoretical wind from hurricanes such as Andrew (this is particularly important for Citrus County).
Huh??
Hurricane Andrew was in 1992. There was nothing of substance in 2002.
It was in 2004 when Hurricane Charley, then Frances, then Ivan, then Jeanne. That's the year that cost Florida even more than Andrew. So the combination of Andrew in 1992 and all the hurricanes in 2004 is what you need to talk about. The year 2002 was nothing.
"A decade after Andrew" - it's been 20 years.