The property/casualty insurance industry has a long history of supporting efforts to improve and enhance safety and reduce losses of all kinds. However, the arbitrary assignment of premium discounts for certain mitigation features without regard to companies’ base rates or premium calculations for existing business has proven to be the downfall of the movement to “harden homes” in Florida, according to the National Association of Mutual Insurance Companies (NAMIC).
Liz Reynolds, NAMIC’s Southeast state affairs manager, submitted a letter to the Windstorm Mitigation Committee of the Florida Commission on Hurricane Loss Projection Methodology and will testify today before committee. In her letter, Reynolds said the Florida windstorm mitigation program “simply isn’t working,” and she urged committee members to recommend that steps be taken to ensure premium discounts are recalibrated to reflect true mitigation efforts and oversight of home inspections is tightened.
Reynolds pointed out that there is strong anecdotal evidence showing that the home inspection system is flawed; that private inspections are inconsistent from one house to the next; and that "active" and "passive" fraud are rampant.
"The purpose of mitigation discounts is to incentivize the hardening of homes. This effort cannot achieve full benefit when many people are receiving credits though they've done nothing to mitigate their homes," Reynolds wrote. "The resulting tragedy is that many homeowners are led to believe their homes are safer than they really are. It also means that those Floridians who have truly hardened their homes do not receive the full benefit for their efforts."
Reynolds also asked the committee to look closely at how mandated discounts are being applied to the premium as they are currently applied to the entire wind portion of the premium, including expenses, other structures, and contents coverage provisions. "The size of discounts in many areas of the state is enormous, often totaling more than 50 percent of the premium," she explained. "NAMIC members support risk-based incentives to encourage strengthening of homes. At the same time, it is crucial that the state's enforcement of the wind mitigation program results in overall premium levels sufficient to pay claims."
“It’s helpful for Florida to undertake a ‘post-mortem’ of its mitigation efforts,” Reynolds stated in her letter. “NAMIC appreciates the committee’s thorough and diligent study of the issue, and we urge members to keep claims-paying ability for the benefit of all policyholders at the forefront of deliberations.”
Today’s committee hearing is the second one for the committee, which was established by legislation passed during the 2009 session and charged with examining residential insurance hurricane mitigation discounts that are based on studies from Applied Research Associates and were implemented in two stages by the Office of Insurance Regulation.
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