Florida Commission on Hurricane Loss Projection Methodology Windstorm Mitigation Committee Report: December 18

Dec 18, 2009

The Florida Commission on Hurricane Loss Projection Methodology (“Commission”) Windstorm Mitigation Committee (“Committee”) met today, December 18, 2009, in Tallahassee.  The agenda included a review of the problems and possible solutions relating to Florida’s windstorm mitigation credit system. 

Pursuant to House Bill 1495, which was signed into law this year, the Commission is required to present a comprehensive report on windstorm mitigation credits to Florida’s Governor, Cabinet, Senate President and the Speaker of the House of Representatives by February 1, 2010.  The report must include recommendations on how to improve the process of assessing, determining and applying windstorm mitigation discounts, credits, other rate differentials and appropriate reductions of insurance policy deductibles.

To date, the Commission has held a series of public meetings to gather testimony and data regarding the implementation of windstorm mitigation-related discounts.  This information will be used in formulating the Commission’s ultimate recommendations for the report, which, for purposes of today’s meeting, were temporarily categorized for review in the following manner:

  • Creation of a governing entity for the mitigation credit system that would develop a unified and consistent vision for the State of Florida that places an equal emphasis on hardening homes along with other objectives (i.e. financially stable insurers),
  • Replacement of the current residential inspection system with an independent inspection organization
  • Establishment of procedures that create complete, quality hurricane modeling data
  • Amending the hurricane computer modeling structure
  • Using windstorm mitigation discounts in a manner that reflects the best actuarial and scientific information

Commission Chairman Randy Dumm reviewed a list of the potential problems related to Florida’s windstorm mitigation credit system that have been identified in previous Committee meetings.  He characterized the current system as rife with fraud and said that the lack of penalties for committing fraud creates a favorable atmosphere for fraudulent activity. Chairman Dumm also addressed consumers’ expectation of mitigation credits and the political concerns associated with increased rates by reducing the credits.  

Commissioner Jack Nicholson stated that modeling discounts need to be a part of the solution toward achieving accurate mitigation discounts.  However, it was noted that a “one-size-fits-all” use of mitigation credits is inconsistent with the complex insurance ratemaking process. 

Florida Insurance Consumer Advocate Sean Shaw expressed concern with the potential recommendation that consumers should pay for inspections and re-inspections.  He does not support the idea that the inspection process should be handled entirely by insurance companies.  

Commissioner Howard Eagelfeld opined that mitigation discounts should not be a property owner’s driving incentive to harden a home.

Next, the Committee discussed the report recommendations.   In regard to the creation of a unified and consistent Florida vision, Dr. Nicholson emphasized that this concept should focus broadly on the State’s multiple objectives associated with its complex residential property insurance market.

Dr. Nicholson also explained the recommendation relating to the residential structure inspection process.  Its intent is to create a small management organization that would oversee the inspection process.  He reiterated that the current inspection system is full of fraud and that such an organization would be critical in both reducing fraud and improving quality control. 

Funding of the proposed independent inspection organization was discussed by the Committee.  Dr. Nicholson advocated for a consumer fee (i.e. $25) to be charged per inspection.  However, Mr. Shaw suggested eliminating this reference because it is an unfriendly consumer provision, to which Dr. Nicholson replied that a fee ultimately would benefit consumers and is necessary to encourage them to take the inspections seriously.

Next, Dr. Nicholson reviewed recommendations for improving modeling data quality, saying that it should be consistent with hurricane computer modeling needs and sufficient for the level of “granularity” required for modeling. 

He also reviewed recommendations on rating and the determination of windstorm mitigation discounts based on hurricane computer modeling, suggesting that the modeling companies should provide the Commission with “relativity features.”  He also suggested revising the modeling review statute to require that models should once again be reviewed annually, rather than every odd year.  Other recommendations addressed included repealing the Uniform Home Grading Scale and requiring insurers to use models for wind mitigation discounts in the same manner as they do in developing loss costs. 

Dr. Nicholson suggested that mitigation discounts should be fair and based on the best actuarial and scientific data available.  He also noted that the Florida Hurricane Catastrophe Fund should recognize the impact of discounts in its rating structure.  Discussion followed regarding the importance of recognizing the vulnerability of the current housing stock. 

The Committee will meet on January 15, 2009 to further refine the recommendations based on the discussions from today’s meeting. 

Materials distributed at the meeting, including “Possible Problems/Recommendations” and a list of recommendations compiled from previous presentations are attached.


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