Florida Last-Resort Insurer to Investigate Validity of Wind-Mitigation Discounts

Florida's state-run insurer said it has "approved an emergency plan" to inspect some personal and commercial residential policies in order to determine the accuracy of more than $700 million in wind mitigation credits provided to policyholders.

"This is one of the most important initiatives that Citizens has ever undertaken, which will benefit both Citizens and its policyholders," said Paul Palumbo, senior vice president of underwriting, in a statement. "Citizens will benefit by ensuring that it has accurate information on the risks it covers. Policyholders will benefit because they receive validated information on the storm worthiness of their home."

Wind mitigation credits have been cited by the industry as one reason many insurers are reporting underwriting losses, even with no severe weather in Florida for several years. Florida Insurance Commissioner Kevin McCarty recently said that 102 of 210 insurers in the residential market reported underwriting losses in their second-quarter financial filings (BestWire, Sept. 28, 2009). The credits are being studied by the Florida Commission on Hurricane Loss Projection Methodology. The industry has alleged misappropriations and fraud involved with the state-mandated credits.

When asked what prompted the plan, Citizens spokesman John Kuczwanski said it was "concerns among the industry that the mitigation credits may not all be valid."

A company contracted by Citizens will inspect a cross-section of about 500 policies at $150 per home. The results will be analyzed as they come in, and Citizens will decide if the inspections should be expanded to include all 400,000 policyholders now receiving mitigation credits, said Kuczwanski. Up to $60 million has been authorized for the verification program, he said. No credits will be taken away from policyholders mid-term.

"Citizens has an obligation to ensure that policies are underwritten and rated based upon accurate information," said Scott Wallace, president of Citizens. Policyholders getting the credits bring in about $1.1 billion in premiums, Kuczwanski said.

The top five writers of homeowners multiperil in Florida based on direct premiums written for 2008, according to BestLink, were: State Farm Group, with a 17.7% market share; Citizens Property Insurance Corp., 16.2%; Universal P&C Insurance Co., 7.2%; USAA Group, 5.1%; and Tower Hill Group, 4.5%.