Fraud, new codes making hurricane credits harder to get

The following article was published in the Palm Beach Post on June 5, 2011:

Fraud, new codes making hurricane credits harder to get

If Citizens Insurance is sending an inspector to verify that your home is hurricane hardened, there’s a good change you can wave goobye to some of your mitigation credits.

Since the company started reinspecting with an eye toward catching deception, 65 percent of single-family homes have lost credits. Among commercial properties, 53 percent inspected were found to have discounts they didn’t deserve.

The state changed its inspection protocol last year after reports from insurance companies of growing fraud. At stake are millions of dollars in credits that insurance carriers award. Insurance giant Citizens offers its policyholders about $1 billion in credits each year.

“If the error rates are anywhere near what we’re seeing, we need to make sure” credits are given properly, said Christine Ashburn, Citizens’ director of legislative and external affairs.

Citizens plans to inspect 94,000 policies this year.

Insurance officials argue that people gaming the system can hurt all policyholders. If the company has to pay out claims and it’s not bringing in as much money as it needs, it will raise everyone’s rates.

Among the abuses noted by the state Office of Insurance Regulation were unqualified or unregulated inspectors, vague forms and a lack of documentation proving homeowners took the measures they said they had taken to harden their homes.

Some inspection companies actually advertised in writing that they “guaranteed” that if they were hired, a policyholder would receive credits, Ashburn said.

Citizens is not targeting any specific inspectors who seem to have a pattern of inappropriate or perhaps fraudulent inspection reports. But the company is closely watching trends and could refuse to accept reports from specific inspectors or inspection management companies.

Certain homes are more likely to be reinspected: older homes, homes with $10,000 in credits rather than those with $100 in credits, and homes claiming types of credits that previous inspections have shown are often misapplied.

To qualify for credits, residential and commercial property owners must hire a certified inspector who provides photographic evidence of any qualifying hardening features.

To prove a credit is justified, the state also has adopted a new four-page form, twice as long as the previous version. Inspectors also are required to follow standards that spell out exactly what qualifies for a credit.

For example, a generous inspector might have previously given a shutter credit if a homeowner had them installed on all but two windows. Now, if all the windows aren’t all covered, the homeowner gets no credit.

To count a metal roof strap as qualifying mitigation, the new standards are specific down to the number of nails and direction – three facing one way and one facing the other.

The same standards used to justify credits in the first place are also the ones used during reinspections ordered by Citizens or other insurance companies. While insurance officials believe fraud is a huge factor, policyholders also can lose credit because standards have changed. Current building codes, for example, require bigger nails spaced closer together on roof straps.

David McDermott, an independent insurance agent in Lake Worth with 35 years in the business, hears it when his clients who once qualified for a credit find out they don’t anymore.

Homeowners seeking mitigation credits must pay for the inspection themselves, so they’re often frustrated to find out they shelled out money for an inspection that was essentially overruled.

McDermott said he typically schedules the inspections for his clients with companies that promise the $150 inspection cost will be made up in credits they get the insured.

When his clients are reinspected and lose credits, they’re “out of luck,” McDermott said.

Yet he thinks it’s a good thing that insurance companies are verifying that people’s homes and business are as protected as they say they are.

“We’re talking about a construction feature that will make your home strong against wind,” he said.