Modeling Commission Outlines Mitigation Concerns
The Florida Commission on Hurricane Loss Projection Methodology continued its discussion of Florida’s mitigation discount program on October 29, 2009. The commission received testimony from several interested parties. Among these presentations, I gave the commission information about the effects of the current discount program on premium levels and insurers’ underwriting decisions. My comments highlighted several specific concerns with the mitigation discount program, including the lack of an allocation between the loss relativities for condominium association policies and unit owners’ policies and the application of discounts to portions of the premium that are not affected by loss reduction measures. We also spent some time discussing insurance fraud issues.
After the presentations, the commission began to outline the problems it has identified throughout its series of meetings. Ultimately, these problems will be followed with a set of recommendations. Some of the recommendations might alleviate problems with the discount process in the short term, but it is also clear that the commission intends to focus on the long-term results of decisions that are made regarding the mitigation program.
The commission divided concerns with the current discount program into five categories: (1) the overall vision for the State of Florida, (2) data concerns, (3) modeling issues, (4) ratemaking considerations, and (5) implementation issues. The commission’s attention to the overall vision of the program– the implementation of mitigation discounts in Florida should reflect the state’s goals in a variety of areas, including improving residents’ safety, incentivizing people to harden their homes, developing accurate and reliable information to guide policy decisions, and applying scientific and proper rate differentials for differing home characteristics.
The commission is considering ways that mitigation data can be improved. The discussion centered around creating a central organization that would oversee inspectors and collect the inspection data in a standardized format.
In the ratemaking area, the commission recognizes a need for more information about exposures throughout the state. The commission also expressed concern with applying the mitigation discounts to portions of the rate other than loss costs and variable expenses.
The commission is concerned with the high degree of insurance fraud in the mitigation discount verification process. A clearing house for mitigation data would reduce opportunities for fraud. In addition, there are steps that insurers and the state can take in the near term to close down abuses that are plaguing the current system.
These are some of the highlights of another all-day meeting by the modeling commission. These and other related issues will be considered over the next few months as the modeling commission works toward its February 1 deadline for reporting its findings and recommendations.