Decades ago the executives of the major car manufacturers in Detroit mulled over one question: Does safety sell? Interestingly, although the executives had statistics on traffic deaths in their hands, it was a question left more to the carmakers' marketing departments than the actual car engineers and builders themselves. As is the case in any highly competitive industry, the pursuit of market share dictates that corporations must explore every angle that could set its product apart from competitors. Even so, when carmakers in the early 1960s first introduced front seatbelts, the executives' concerns were whether the additional costs for the safety devices would eat into profits. Then there was the larger concern over what the emphasis on safety might do to the image of the industry. No other consumer product in the post-World War II era reflected the sunny optimism of the American dream than the automobile. Given that finely honed Madison Avenue image, many in the industry balked about placing a spotlight on safety that could also raise fears about the physical dangers of driving.
It was up to Ralph Nader, in one of the greatest examples of muckraking journalism, to open the great public debate over car safety when in 1966 he published Unsafe at Any Speed. In a critical examination of the carmakers' quest for profits over safety, he single-handedly ended the production of the Chevrolet Corvair and firmly fixed the public's attention on safety. Ironically, Nader's success in casting carmakers in a negative light ended the industry's debate over profits vs. safety by giving the carmakers the opportunity to become the consumers' great protector. In the decades following Nader's book, the industry–with some prodding by the government–has introduced safety features such as front and backseat shoulder belts, front and rear shock-absorbing bumpers, anti-lock brakes, and driver/passenger airbags. It also spawned any number of associated items such as child safety seats and introduced the Consumer Reports car safety rankings, which most car buyers have memorized before they walk into a dealership.
Does Safety Sell?
The answer to that question is found in every marketing campaign for a domestic or foreign car where the list of the car's safety features often runs twice as long as the list of drive-train specifications or accessories, such as stereos. In just a few short steps, car safety went from a marketing question to a consumer demand, and one they were willing to pay for. It was a lesson not lost on the automobile insurance industry. Almost overnight, the industry changed its focus from marketing auto insurance solely as a means to protect an individual's property to promoting it as a means to protect an individual's life. When Allstate proclaims a policyholder is in "good hands," what is at stake is a lot more than a dented fender.
In retrospect, the history of car safety is one of those rare corporate lessons of how a number of diverse concerns can come together and change the culture of an industry that benefits all concerned. Little wonder then that it serves as a blueprint for many as they try to address one of the largest homeowners' concerns in the state, namely, how to increase the number of homes still standing after a major hurricane makes landfall. Marching under a banner labeled "mitigation"–an esoteric word that should be retired as soon as possible–lawmakers, regulators, homeowners, realtors, and carriers find themselves at a similar crossroad where money, regulation, and most of all, perception meet.
Mitigation: A Slow March
Much like the role of safety in the car industry, the concept of strengthening homes against hurricane damage has proven to be a rallying point where everyone involved in the homeowners' debate can find common ground. That certainly was the case in the 2007 legislative session where the passage of the primary property bill brought dire warnings about its impact on the homeowners' market. Such is the reaction when the state virtually erases the words residual market from the insurance lexicon by freezing the Citizens Property Insurance Corporation's rates at 2006 levels until at least 2009 and makes the state-run insurer a competitive force in the marketplace. And that is not to mention a new provision that ends the ability of national carriers to form Florida-only subsidiaries as of December 31, 2008.
But under the rubric of mitigation, even the state's most critical voices against the latest round of property reforms could find something positive to say. Property Casualty Insurers Association of America lobbyist William Stander, one of the most voracious opponents of the main property bill, moderated his tone when it came to a bill aimed at reinforcing homes against hurricane damage. "This type of legislation typifies the long-term approach that all Floridians can support," he said. "Fortifying homes from future storm damage can help to save lives and reduce property damage. In the long run, these efforts will help to reduce insurance costs and help ease the state's insurance crisis."
Until now, the state's premier mitigation effort has been focused on the construction of new housing, especially along the state's high-risk coastline. The Florida Building Code is designed to create a uniform safety standard that contractors must meet when constructing a new home. Although contractors and developers initially fought the introduction of the code, saying, in effect, it would increase housing costs and slow down the sales of new homes, the evidence suggests otherwise. The University of Florida Bureau of Economic and Business Research recently found that the current slowdown in housing sales is due to an overdue market correction, an increase in mortgage rates, and rising gas prices. As a result, housing prices are actually trending downward while there is some evidence to suggest that consumers are focusing more on safety features as a means to qualify for premium discounts.
In 2003, the International Hurricane Research Center conducted a statewide survey that found 54 percent of home buyers indicated that hurricane safety features were a consideration when they were looking for a home. And the National Institute of Building Sciences released a study in 2005, which calculated that for every dollar spent on mitigation, it saved an estimated $4 in future losses. Following the 2004 and 2005 hurricane season, the Tampa-based Institute for Business and Home Safety found that in the counties hit hardest by hurricanes, there were 27 percent fewer rebuilding permits for homes built since the statewide building code took effect in 1994.
New Construction vs. Mitigation
As is the case of installing safety features in cars, making homes more resistant to hurricane damage is much easier to do with new construction. The cost factors can be better managed and the improved safety features can be touted as a plus for consumers in the form of offering more protection to family members and as a financial incentive to qualify for premium discounts. Convincing homeowners to open their pocketbooks and make changes to their current home is a much more difficult task. In addition to rising fuel costs, many homeowners are absorbing double-digit increases in healthcare costs, while at the same time trying to save for retirement or put away money to pay for a child's college tuition. Trying to place mitigation on the same level as those priorities is a tough sell.
Then there is the overwhelming scope of the number of homes that potentially need to be retrofitted against hurricane damage. University of Florida Professor Dr. Robert Stroh, director of the Shimberg Center for Affordable Housing, Rinker School of Building Construction, recently made available the university's survey of the state's housing market. According to the survey, there are 4.4 million single-family homes in the state, 3.2 million of which were built before 1995. The average home is 24 years old, has 2,000 square feet, and is resold every ten years. Additionally, there are 1.6 million condominium units that have an average age of 29 years. Fifty-eight percent of those units are located in Miami-Dade, Broward, and Palm Beach counties.
Where to Start
This year's mitigation legislation was aimed at reinforcing the state's latest blueprint to raise the awareness of the benefits of strengthening homes against hurricane damage by offering homeowners free inspections and a variety of financial incentives to retrofit their homes. In the 2006 legislative session, lawmakers created a pilot program that is now formally known as the My Florida Safe Home Program, to explore the possibility of implementing a hands-on state mitigation program.
Administered by the Department of Financial Services and backed by a $250 million appropriation, the state contracted with Wind Certification Entities to conduct free home inspections in 17 counties. To qualify for the inspection, the homeowner must file an application that showed the home qualified for a homestead exemption and had an insured value of less than $500,000. All the homeowners whose homes were inspected were provided with a grant application where they could apply for a matching grant of up to $5,000 to make improvements to their residences.
The initial start-up of the program produced mixed results. Although over 67,000 homeowners applied for the inspections, weaknesses in the program limited its actual results. Between August 2006 and March 2007, only 14,700 homes were inspected and 960 grants awarded. The DFS reported that as of May, the program had paid out only $200,000 in grants to 88 homeowners who received half the costs of making improvements such as installing shutters, reinforcing garage doors, and reinforcing roofs. Another 5,100 homeowners are in the process of making improvements and will receive their grants after the work has been completed.
In the 2007 special session, lawmakers created a Windstorm Mitigation Study Commission to review the program. The committee concluded that the pilot program was hampered by a lack of resources and expertise. However, the committee supported the program as a "firm foundation upon which to implement a meaningful statewide program."
Legislative Support
Chief Financial Officer Alex Sink, who oversees the program, said she agreed with many of the commission's findings and remained committed to the program. "I am excited that Floridians are hardening their homes before the next hurricane season starting with the help of the My Safe Florida Home program," she said. "It is my goal to increase awareness about the financial and safety incentives available to homeowners who choose to mitigate their homes and better protect their families."
Even before the legislature enacted the recent mitigation bill, Sink made moves to shore-up the program. In April, the department contracted with 11 new windstorm inspection firms to help resolve the backlog of 50,000 homeowners' requests for inspection. After a two-month competitive bidding process, these firms were chosen based upon their scores, capacity to perform a minimum number of quality inspections each week, and in-house resources available to manage the large number of applicants to the program. After a 60-day ramp-up period, each firm has agreed to conduct a minimum of 1,000 inspections a week.
"I want to make it work for every homeowner," Sink said. "My goal would be to educate homeowners about the importance of hardening their homes, whether they get a grant or not."
Leslie Chapman-Henderson, head of the Tallahassee-based Federal Alliance for Safe Homes, said the report's findings presented a good balance between expanding existing mitigation efforts and finding ways to get more homes covered through mitigation efforts. "We know how to build sturdier homes," she said. "I think the state of Florida is serious about mitigating and hardening homes to stop the cycle of destruction of homes built, destroyed, and then rebuilt following hurricanes."
Changes Coming
In the recently concluded legislative session, lawmakers showed their commitment to the My Safe Florida Home Program by enacting legislation to streamline the program and expand its reach. The changes include the following:
The legislature clarified that the legislative intent of the program is to provide at least 400,000 inspections and at least 35,000 grants by June 30, 2009.
The bill makes the free home inspections available statewide, but limits the inspections to site-built, single-family residential property.
The amount of matching grants (and non-matching grants for low-income homeowners) are maintained at a maximum of $5,000, but grants are limited as follows:
Grants may only be used for opening protections (such as shutters); exterior doors, and to brace gable ends (and are no longer available for roof upgrades). The DFS may require that all openings be protected as a condition of approving a grant, under certain conditions.
The property must be homestead property with an insured value of $300,000 or less (rather than $500,000), located in the "wind-borne debris region," and built prior to March 1, 2002. The "wind-borne debris" region is where the Florida Building Code requires new homes to have opening protections (shutters, etc.) and is where sustained winds of 120 mph or greater are likely to occur.
The DFS must establish objective, reasonable criteria for prioritizing grant applications.
The bill allows hurricane mitigation inspector training to be online or in person and allows a hurricane mitigation inspector to also be the mitigation contractor if the inspector is otherwise qualified and certified.
The bill requires that an application for an inspection must contain a signed or electronically verified statement made under penalty of perjury that the applicant has submitted only a single application for that home.
The DFS is authorized to contract with third parties for grants management, inspection services, educational outreach, and auditing services. Contracts valued at $500,000 or more shall be subject to review and approval by the Legislative Budget Commission.
DFS shall transfer $40 million from funds appropriated to the MSFH program, including up to five percent for administrative costs, to Volunteer Florida Foundation, Inc., for provision of inspections and grants to low-income homeowners. The VFF must report its activities and account for state funds on a quarterly and annual basis.
In making matching fund grants available to local governments and nonprofit entities for projects that will reduce hurricane damage to single-family residential property, the DFS must liberally construe such requirements in favor of availing the state of the opportunity to leverage program funding with other sources of funding.
The DFS may use up to $10 million from the funds appropriated for the MSFH to develop a no-interest loan program by December 31, 2007, to encourage the private sector to provide loans for mitigation measures. The DFS shall pay the interest on the loans, which may be for a term of up to three years and cover up to $5,000 in mitigation measures.
The DFS is directed to make an annual report by February of each year on the activities of the program that shall account for the use of state funds.
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