Curing the home mitigation plan
The Tampa Tribune
Published: October 28, 2009
Florida’s effort to harden homes against hurricane loss is a smart policy, but, so far, it also has been a flawed one. It’s time to adopt sensible reforms.
By offering incentives to strengthen houses, Florida is saving lives while lowering premiums and the costs of rebuilding for homeowners, insurance companies and the state.
But there have been problems with the way the state awards discounts to homeowners. Lawmakers last spring tasked a commission with holding public hearings on the mitigation program and providing recommendations to improve it. The committee’s third meeting is Thursday in Tallahassee.
The program works like this: When homeowners add hurricane shutters, reinforce doors or tie down the roof, they receive a premium credit for undergoing the often expensive process.
Unfortunately, the size of the discounts granted to many homes has been out of line with the actual reduction of risk to those dwellings.
There are two basic issues under study: whether there is fraud and/or widespread errors in the private home inspection process, and whether the discounts the Office of Insurance Regulation requires insurers to provide for mitigation are in many cases too high for the actual reduction of risk to the home if a storm sweeps through.
What seems clear is that state oversight of home inspections must be tightened and the discounts recalibrated to reflect true mitigation efforts.
Windstorm mitigation premium credits were well-intentioned, but when they are too great, it directly affects insurance companies’ bottom line. That’s one of the reasons some of the biggest, like State Farm, have sought hefty rate increases.
Moreover, while many people may have invested a lot to harden their homes, there is evidence that suggests others have applied for and received the discounts without doing much, sometimes at the encouragement of contractors.
In some cases, homeowners may be unaware that no mitigation has taken place. That puts them in danger. In other instances, however, the homeowners are part of the scheme to game the system.
We have no desire to be apologists for the insurance companies. But what has happened with Citizens Property Insurance Corp., the state-run insurer of last resort, and the hurricane catastrophe pool has taught us that premiums should accurately reflect risk. If the insurance company is charging too little, it is not building up the surplus it will need to pay claims when a hurricane hits.
Many homeowners deserve the premium credits they receive because they invested in shoring up their homes, but others have not. The discrepancy hurts the program. Homeowners should not receive mitigation discounts if they haven’t actually improved their homes’ chances of withstanding a storm.
Also, there is strong anecdotal evidence that the home inspection system is flawed, that private inspections are inconsistent from one house to the next and that fraud is rampant.
When people are led to believe their homes are safer than they actually are, it endangers lives and leaves the insurance companies more exposed to hurricane losses. It makes reinsurance – a major driver of premium costs – more expensive.
The state must take additional steps to ensure that private home inspections are conducted accurately by professionals, and eliminate the abuse that could wash away the foundation of this well-intended effort.