Florida Commission on Hurricane Loss Projection Methodology Windstorm Mitigation Committee Hearing Report: October 29

The Florida Commission on Hurricane Loss Projection Methodology (“Commission”) Windstorm Mitigation Committee (“Committee”) met on October 29, 2009, during which it heard public testimony on the current system for granting insurance credits for windstorm mitigation features.  The Committee also developed a draft outline of its mandated report on problems with, and solutions for, the windstorm mitigation credit system, which must be presented to the Florida Executive and Legislative leadership by February 1, 2010.  To view the meeting agenda, click here.  Following is a summary of the presentations given during the seven-hour meeting:

Representatives from SkyeTec, a national building inspection firm, gave a presentation on fraud occurring in the inspection process and presented solutions.  One proposed solution is to require inspection companies to have a quality assurance program.   To view the SkyeTec presentation, click here. 

Phillip Franco with Felten Professional Adjustment Team gave a presentation on the importance of distinguishing mitigation inspections of commercial residential buildings from inspections of single family homes.  Mr. Franco stressed the importance of commercial residential windstorm mitigation feature inspectors having experience performing commercial building inspections and not just a certification.  To view Mr. Franco’s presentation, click here.

Florida Office of Insurance Regulation Deputy Insurance Commissioner Belinda Miller addressed the Committee about the revenue losses some Florida insurance companies have had as a result of providing mitigation credits.  Ms. Miller stated that other companies have worked through the mitigation credit issue by adjusting their rate algorithms.  She went on to explain that government is not the only party to be blamed for the growing mitigation credit problem.  A few Committee members expressed frustration that the entire program had been implemented improperly, progressed too quickly, and as a result, now promotes fraud.

Peter Scourtis, an actuary with Merlinos and Associates, gave a presentation on the impact of mitigation credits on ratemaking.  Specifically, Mr. Scourtis suggested moving from a market that is partially informed to a market that is fully informed.  To view the presentation given by Mr. Scourtis, click here.

Werner Kruck from Security First Insurance Company provided an insurer’s perspective on the problems with the mitigation credit system.  In his presentation, which may be viewed by clicking here, Mr. Kruck showed how mitigation credits offset revenue and negatively affect surplus. He also stated that existing housing stock is not being hardened against hurricanes at anything close to the rate of discounts being applied. 

Peter Vickery with Applied Research Associates gave a presentation relating to issues with using data from multiple hurricane loss projection models to determine wind mitigation rate differentials, inspection accuracy and mitigation rate filings.  To view Mr. Vickery’s presentation, click here.

Kay Cleary from Risk Management Solutions (“RMS”) gave a presentation on recommendations for improving the wind mitigation credit system.  Ms. Cleary’s recommendations included:  making inspections mandatory, holding insurance companies responsible for the inspections, allowing companies to have wind mitigation surcharges, simplifying the mitigation relativity matrix by considering rating characteristics separately from mitigation factors, and modifying the Florida Hurricane Catastrophe Fund (“FHCF”) premium calculation process to include more data collection.  To view Ms. Cleary’s presentation, click here.

FHCF Chief Operating Officer and Commission member Jack Nicholson was given a few minutes to share his observations on ways to solve some of the mitigation credit problems.  Dr. Nicholson suggested that accurate, unbiased and higher-quality data be used to calculate wind mitigation credits and that the focus of mitigation credit programs should be on home hardening, rather than on insurance premium discounts.  He also suggested that an independent organization be created to house the data, perform internal and external audits and play a large role in the oversight, licensing and training of inspectors.  To view Dr. Nicholson’s presentation, click here.

Following the presentations, the Committee spent two hours creating an outline identifying wind mitigation system problems and proposed solutions to be addressed in the Committee’s mandated report.  The outline was categorized into five main headings:

1. Vision of the State (Purpose)
2. Data
3. Models
4. Ratemaking Process
5. Implementation

To view the Committee’s outline, click here.

Following the presentations and discussion, the meeting adjourned.  The next Committee meeting has not been scheduled at this time.

Should you have any questions or comments, please contact Colodny Fass.

This summary is not intended to be a comprehensive analysis of the issues contained herein. 

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