NU Online News Service, Jan. 27, 3:20 p.m. EST
Since the windstorm mitigation discounts were implemented for Florida homeowners, the residential property insurance market's financial performance has worsened, according to a state study group.
Florida's Commission on Hurricane Loss Projection Methodology's Windstorm Mitigation Committee said in a draft report that this result "is particularly disconcerting given that the market has experienced no hurricane losses in the past four hurricane seasons."
The result was not what was expected, the committee said, noting that "windstorm mitigation has been widely touted as a critical component of the state's efforts to stabilize and strengthen the insurance market in Florida."
"By improving the performance of the housing stock against wind-related losses, windstorm mitigation was to result in greater market participation by insurers and reinsurers as the uncertainty surrounding the performance of the housing stock was reduced. Besides improving the safety for homeowners and their families, windstorm mitigation also was expected to lead to price stability for the market in general and premium reductions for some consumers.
"Against this backdrop, a logical conclusion was that windstorm mitigation efforts would lead to a healthier property insurance market in Florida," the committee noted.
It found that insurance market distortions had been caused by decisions on how mitigation credits are to be applied to the ratemaking process.
It also mentioned there were:
o Timing issues related to insurer delays in requesting rate relief and the insurance regulator's determination that insurers have failed to provide sufficient justification for offsets to account for windstorm mitigation credits.
o The use of one modeling firm's mitigation relativities to develop state-approved mitigation credits
o The potential presence of fraud, errors, misinterpretation of rules, etc. that impact on premium sufficiency and the quality and reliability of loss data.
The committee concluded that "the current system for assessing, determining and applying windstorm mitigation discounts has failed to operate as intended and has contributed to problems in the residential property insurance marketplace."
Their findings drew an immediate statement of support form the Property Casualty Insurers Association of America (PCI), which yesterday praised the findings and expressed "support for the principles of rate adequacy and actuarially appropriate discounts and credits" in the report.
"We applaud the Windstorm Mitigation Committee for taking a studious approach to this important issue," said William Stander, PCI's assistant vice president and regional manager for Florida.
Mr. Stander said PCI supports windstorm mitigation "as one of the few actions proven to reduce catastrophe losses, and we also support incentives, like discounts and credits, that encourage homeowners and business owners to harden their properties. At the same time, these discounts and credits must be administered properly and reflect actual data, and furthermore, they must be calculated in relation to adequate base rates."
His organization, said Mr. Stander, "looks forward to working with Florida legislators in crafting a bill based on this report that leads to stronger homes, safer families and long-term solutions to our natural catastrophe issues."
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