What’s the truth behind the increase in homeowner’s insurance premiums?

Last Thursday, October 1, I was driving around when a new report on WLRN piqued my interest. The report said that Florida was going to allow the raising of insurance premiums again for homeowner’s policies.

I wondered how this could happen. After all, we haven’t had a hurricane in 4 years. Those insurance companies must be raking in the profits - 4 years of not having to pay out on any losses, 4 years of not having to send out any insurance adjusters, 4 years of sitting around on a pile of cash. “Hum, how could this happen?” I asked myself. The story stated that one of the reasons was that the insurance companies were losing too much money on the wind mitigation credits - they were not getting enough money from premiums.

As it stands now wind mitigation credits are offered for strengthening roofs by reinforcing roof-towall connections, roof decking and attachments. Concrete slab roofs also yield mitigation credits. In addition, credits are also granted for preventing water intrusion with secondary water barrier
protections. And lastly, protecting door and window openings with shutters, or providing impactresistant windows, also qualify for credits.

So why are the companies losing money on the credits?

I decided to research the issue. I came across a couple of articles on the internet that speak to the issue and can actually give us more details. The Florida Commission on Hurricane Loss Projection Methodology, Windstorm Mitigation Committee Hearing Report (September 17) states that some counties are actually paying too little while others are paying too much. But then the report adds:

              Florida Association of Insurance Agents Executive Vice President Scott Johnson provided
              testimony relating to agent issues. After his presentation, there was significant discussion
              regarding inspection fraud and that some agents may passively allow fraud to occur. Mr.
              Johnson recommended that policies should be adopted to give a policyholder "skin in the
              game" regarding verification of premium reductions. Dr. Nicholson noted that the system is
             "sick" and that there should be laws against tying financial incentives to wind inspections.
              Agents should not have business relationships with inspectors.

There is also an interesting article by Scott S. Koedel, CPA, president and COO of Don Meyler Inspections, Ensuring the accuracy of windstorm mitigation credits, where he argues:

             As awareness of the windstorm mitigation inspection has increased, so has the sheer
             quantity of inspectors performing inspections, which now number in the thousands. This
             rapid growth has resulted in a widely varying level of quality control processes among
             inspection companies. While one company may … submit them to a quality control
             department run by a professional engineer, another may handwrite the inspecti on results on
             a paper form and leave it behind with the homeowner.

Koedel continues:

            Unfortunately, fraud has become a topic of concern. Underwriters have reported numerous
            instances of inspectors not entering policyholders' homes or attics, an obvious prerequisite
            for a proper windstorm mitigation inspection. In the most examples of impropriety, doctoring
            of the mitigation inspection form has occurred.

In the article, he continues with what steps could be taken to rein in the inspectors.

So apparently, the problem is not the issue of the wind credits, but the fraud that is occurring with the inspections.

The other question which could be asked would be: Would the credits save insurance companies money if a hurricane were to occur?

If we go back to the September 17 report:

            Applied Research Associates Chief Technical Officer Larry Twisdale continued his
            presentation on a loss relativity study from the previous Committee meeting. The study
            indicated that a well-mitigated building will reduce loss by 40-60 percent.

In conclusion, the problem that the insurance companies are losing money is not due to the mitigation credits when they are properly applied. A building which is properly built to the new building codes, and roofs which are either concrete or have the latest attachments and roof coverings, will reduce the losses that an insurance company will have to pay out should a hurricane hit the area.

So the solution to the problem should not be to raise premiums but to control who can sign off on wind mitigation credit forms.

Residents of the state should demand that inspectors hold a special license where they are liable, as any professional engineer, or architect, or general contractor would be. Or as an alternate, they must be licensed architects, professional engineers, or general contractors. The inspection for should be sent directly to the state by the professional. No leaving behind any forms for the homeowners to doctor or fill out. And, then we can demand that premiums remain the same and not be increased.

Posted by Maria Luisa Castellanos on October 8, 2009 at 9:44 PM under

architecture, effects of decisions on built environment

• 3 comments

Bob Schecter on October 12, 2009 at 12:55 PM said:

If there is an opening for corruption, someone will try to fit it in, and in the case of mitigation inspections, there is room to drive a truck through. Certainly, it is far easier to do a drive-by inspection than to do a thorough one, and if inspectors are paid by the inspection, well ..... you get the picture. But is there a solution? We've gone over this in several round-table discussions, and while there have been some great ideas, all inevitably pointed back to the insurance industry or the government .... pick your poison. Given that it is not politically expedient to resolve this issue, my guess is that, aside from some disgruntled bloggers, things will remain as they are. Regulation might work, and the insurance companies would likely embrace the regulations and even promote it through policy discounts. Of course, it only works if those regulating weren’t corrupt or inept, or the regulation could be monitored and tempered with some degree of logic. Also, someone has to pay for this regulation, and that would have to be the homeowner – can’t present that in an election year, a depressed year, a leap year, or just about any year, if you want to get elected. And unfortunately, we’ve all how regulation quickly turns into over-regulation and actually becomes more of a problem then the problem you are trying to regulate. The government simply isn’t capable. Another solution came from insurance brokers. Require inspection companies to insure the quality of their inspections through their own insurance on a per inspection basis. Unfortunately, that would transfer insurance premiums to other insurers and that wouldn’t be acceptable to the companies that provide your homeowner’s policy. It’s amazing how many excuses and arguments the insurers could come up with to keep your policy, all the while threatening to abandon your policy. And again, no politician is going to fight the insurance companies on such a nebulous issue when they can stay focused on more campaign defining issues. So the status quo will prevail because it is in the best interest of those that matter most – that would be those who have the most of course.
Howard Elakman on October 14, 2009 at 11:56 PM said:

As a State Certified G.C. I usually am ashamed to call myself a G.C. There are just to many in this catagory with no education or ethics. The so called inspectors just do what their friends or customers ask because it is no skin off their nose.The industry of General Contracting needs more policing and must be held responsible. Continuing education is something that needs to be raised to a level of REAL education. The number of people practising general contracting with no license is staggering, but that is what the public wants because it is the cheapest. I, for one cannot compete with contractors that do not have the same insurance costs as I have. Just as the building prices have sky rocketed, the cost of building has gone up at a rediculous rate. Competition is reduced to "how much can we get away with".
Anonymous on October 14, 2009 at 11:58 PM said:

Very interesting find. What could be done so that the premiums are not raised and the industry be overhauled instead? It is very frustrating but these systems really go unchecked and end up being uphill battles in which the homeowners don't come out on top. Have you checked your FPL bill lately? Did you notice that your vehicle registration is now about 60% more than last year? Did you notice that many in our community are getting paid less or don't have jobs? It is an outrage! YM

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