Insurers pulling back on hurricane discount

May 19, 2012

The following article was published in the Sarasota Herald Tribune on May 19, 2012:

Insurers Pulling Back on Hurricane Discount

By Zac Anderson

The price shock can be dramatic: Englewood retirees Bob and Janet Dodds will pay 100 percent more for their windstorm insurance and Venice resident Henry Holzapfel another 50 percent this year.

In both cases, state-run Citizens Property Insurance is demanding nearly $1,000 in additional premium annually from the homeowners as part of an aggressive effort to strip policyholders of discounts for hurricane-resistant home features such as storm shutters and reinforced roofs.

Without applying to state regulators for rate increases, state-run Citizens and many private insurers are substantially increasing premiums for tens of thousands of Florida homeowners through a controversial home reinspection effort that is roiling the property insurance market this year after a slow ramp-up.

Citizens alone is conducting 209,000 inspections in 2012 to verify that hurricane discounts were properly awarded. So far, policyholders are getting stuck with larger bills 62 percent of the time, according to data presented at a Citizens meeting last week. The average premium increase: $600 per year.

Overall, Citizens’ reinspections are creating a 23 percent rate jump for homeowners, even as the company is restricted to 10 percent annual increases through normal rate-setting.

As of April, Citizens had collected $108 million in additional premium revenue from reducing or eliminating hurricane discounts for roughly 108,000 customers over the last two years. Comparable figures for private insurers are not available.

The reinspection effort is unwinding a program begun in 2002 to reward homeowners with hurricane-resistant structures, and those who make improvements. The discounts, which every property insurer in Florida is required to provide, were doubled in 2007 to help lessen the impact of rising insurance rates and encourage homeowners to defend against future storms.

But private insurers balked, arguing that the discounts were too generous and that inspectors often distorted findings to help homeowners. State Farm cited them as a big reason for its decision to stop writing new Florida policies.

Responding to the insurance industry, state lawmakers made changes that are just now reaching their full impact on policyholders. The loss of discounts is putting more upward pressure on already-high premiums, straining homeowners’ budgets in a struggling economy and raising concerns that Florida’s aging housing stock will become more vulnerable to hurricanes if residents have fewer incentives to protect against storms.

Citizens — with more than 1.4 million policies it is Florida’s largest property insurer — has implemented one of the most aggressive reinspection programs. Every policy with more than $650 in credits is being reinspected in the first phase.

One Sarasota insurance agent said that two to three customers call daily complaining about the reinspections.

Back-door rate

Lyn Suter, an agent with Sarasota’s East County Insurance, acknowledges that some inspectors may have been too generous in awarding past discounts, but adds that Citizens and other insurers have swung too far in the opposite direction.

Suter finds it hard to believe more than 60 percent of the original inspections were flawed.

“Citizens comes out and says you’re not going to get the discount because you’re missing one nail on a strap, so of course the customer is unhappy,” Suter said. “They’re being very aggressive with it.”

A Broward County man who lost his hurricane discounts filed a class-action lawsuit against Citizens earlier this year. The homeowner’s attorney describes the reinspection program on the law firm’s website as a “scheme by Citizens to circumvent the cap on rate hikes.”

Bob Dodds, the Englewood resident, said he does not plan to join the suit, but is petitioning Citizens to review his case.

From 2000 to 2006, Dodds meticulously researched the best products to protect his home in a hurricane. He spent $12,000 on Bermuda shutters, reinforced skylights and a garage door braced with thick metal cross beams.

After learning about the discounts for hurricane protections, Dodds called his insurance agent in 2008 and was given the names of three inspectors. He picked the first on the list. The inspector submitted a report to Citizens and Dodds’ wind insurance dropped from $1,940 to $865 per year.

In September, Citizens sent a new inspector to Dodds’ home. Nearly every aspect of the original inspection was challenged. Dodds recently received a letter from Citizens saying his bill will more than double in August.

A retired high school industrial arts teacher who built his own home in upstate New York, Dodds is familiar with building materials and construction techniques. He agreed with some aspects of Citizens’ reinspection.

The first report gave him credit for roofing nails instead of the weaker staples that actually were used. There were other inaccuracies, but Dodds believes the Citizens report does not acknowledge all the improvements he has made over the years.

“I definitely didn’t get credit where credit was due,” he said.

Holzapfel, the Venice resident, is challenging his Citizens reinspection from October. The report resulted in a February letter notifying Holzapfel his windstorm premium would increase from $2,100 to $3,100 on a home near the beach with an insured value of $500,000.

Holzapfel has spent $45,000 on new windows, hurricane shutters, a wind-resistant garage door and other improvements over the last two years to protect his home in a storm.

But what really bothers him is the loss of a discount relating to his roof, which was replaced in January 2002. Citizens only gives discounts for roofs installed after Feb. 28, 2002.

He sent Citizens a letter from the roofing company president saying the roof meets all current building standards and would be installed exactly the same today.

“They strip the discount away and don’t give you a rationale other than a date,” Holzapfel said. The arbitrary cutoff “just doesn’t make any sense.”

Holzapfel said he would have installed the hurricane protections regardless of the discounts, but he believes the reinspections could deter others from retrofitting their homes. That fallout could range from fewer storm shutters sold to increased damage and more claims after a hurricane.

“If there’s no incentive to do that, think about our economy,” he said.

Getting what’s due

Insurance industry officials say the reinspections ensure that homeowners are not getting discounts for building features that will do nothing to protect a structure in a hurricane.

Sam Miller, a spokesman for the Florida Insurance Council, said there was a “huge error rate” among inspectors who gave out the original discounts.

“It turns out, for a variety of reasons, people are getting the discounts with no basis,” Miller said. “If someone does not qualify for a certain level of discounts, he or she never should have gotten them.”

Citizens spokeswoman Christine Ashburn noted the company still gives nearly $1 billion in hurricane discounts annually.

“It’s really important those folks who have the features get the credits, but if you don’t have the features that reduce the likelihood of risk, those credits are not owed to you,” Ashburn said.

The insurance industry successfully pushed legislation that requires better documentation of inspections, penalties for false information, more training for inspectors and independent verification by the insurer.

Ken Vanpelt conducts 20 to 30 wind mitigation inspections a month through his North Port company, Southwest Sun Home Inspections.

He said there were “a handful of inspectors who didn’t really care as long as they could make a buck,” but believes the reinspection programs have gone too far.

“I think they’re being harsh,” Vanpelt said. “I don’t think the error percentage could be that high. I think you have a lot of good inspectors out there doing a good job. Most of the guys I’ve met are honorable people.”

Dodds and his wife live off Social Security payments and his New York teacher’s pension.

Their total insurance cost will hit $4,105 — $342 a month — on a home with an insured value of $289,000 when their Citizens wind policy is renewed in August.

The couple are preparing to sell the home, in part because of the rising insurance costs. They and other Citizens customers have watched as the company has taken other steps in the past year to make the insurer less attractive in order to shed policies and reduce its overall liability, including cutting coverage of carports, sheds and other structures.

“What’s going to happen to the real estate market down here?” Dodds asked. “And that’s supposed to be No. 1 for the state’s economy?”

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