News & Updates


Mitigation Discounts Under Review

By: Travis Miller

Perhaps no regulatory issue in Florida is affecting as many insurers and attracting as much attention as the windstorm loss mitigation discount program. Insurers have urged that the discounts are too great, ultimately resulting in their not collecting enough premiums to cover the reinsurance costs associated with mitigated homes. In addition, questions have surfaced about the legitimacy of discount verification forms in some instances, with insurers finding that forms are not being completed accurately and sometimes that homes are not being inspected at all. Even an updated study by the firm that developed the original discount relativities suggests that Florida missed the mark when originally implementing the mitigation discounts, with the relativities erroneously being applied as discounts from a hypothetical “worst” risk instead of as adjustments from an average or base risk. 

The merits of the current mitigation will come under review in at least two contexts. First, State Farm submitted a filing to the Office of Insurance Regulation on July 24 seeking to modify its mitigation discounts and to adjust or eliminate other discounts. See, “State Farm Seeks Changes to Discounts and Credits” on page 7 of this report. State Farm points out that the mitigation discounts should be applied as reductions from the base risk, or typical risk, cited in the original ARA loss relativities study. State Farm proposes that insureds with homes showing greater mitigation features than the typical risk will receive discounts (smaller than under the current program), but that insureds with lesser or no mitigation features will not be surcharged. At the same time, State Farm contends that the BCEGS credits should be reduced because they partially overlap with the mitigation discounts. Finally, the company proposes to eliminate some of its other discounts such as the home/auto discount. The Office of Insurance Regulation has 90 days in which to review State Farm’s filing. The Florida Commission on Hurricane Loss Projection Methodology also will
commence its review of Florida’s mitigation discounts in mid-August.

The Florida Commission on Hurricane Loss Projection Methodology also will commence its review of Florida’s mitigation discounts in mid-August. The Florida legislature in the 2009 session directed the loss projection commission to review the implementation of the mitigation discounts. The modeling commission recently announced a work plan, available on the Insurance Resources page of our website, outlining how it will proceed with the review and deliver a report prior to the 2010 legislative session. The commission will begin in mid-August by inviting the Office of Insurance Regulation, Florida Department of Financial Services, the insurance industry and others to discuss their interpretations of statutes and rules governing the mitigation discounts. The commission then will hold additional meetings to discuss how the discounts have been implemented, the perceived problems with the discounts, and potential solutions. The loss projection commission’s study might form the basis of legislative action in the 2010 session.