State may gut discounts for shutters

Miami Herald, 8/9/2009

Kurt Bressner spent more than $16,000 installing storm shutters, a reinforced garage door and an impact-resistant front door on his Boynton Beach home. In return, he got more than peace of mind.

Effective this year, he got a $5,362 break on his annual insurance premiums.

Now, Bressner — and more than 700,000 other Florida consumers who spent big money to fortify their homes — could see their ”wind mitigation” discounts dramatically reduced.

Insurers, led by State Farm Florida, are complaining that the discounts for installing shutters and other protections have become so popular that they are undercutting the industry’s bottom line.

Last year, citing the cost of the discounts, State Farm asked for a 47.1 percent rate increase. The state said no, but the Legislature agreed to review how the discounts are tallied. The first public hearing is Wednesday in Tallahassee.

Bressner thinks it is ”counter-intuitive” for insurers to want to strip away incentives that encourage policyholders to make their homes better able to withstand a windstorm.

State Sen. Mike Fasano, R-New Port Richey, who serves on the Senate’s banking and insurance committee, recalled State Farm’s president testifying on behalf of the discounts. ”This is what they wanted and this is what they got,” Fasano said. ”Now they want to take away [the discounts] from homeowners. That’s a promise they’ve broken.”

Still, lawmakers are willing to listen to the industry. ”We want to be sure that the discounts we’re offering are right,” said State Rep. Bryan Nelson, the Apopka Republican who sponsored the law mandating the review.”We’re reducing premiums every year,” said Carol Everhart, a member of the governing board with Citizens Property Insurance, the state’s largest insurer. ”But what we’re doing isn’t based on a valid study.”

State Farm did not respond to requests for comment.

Wind mitigation discounts have been around since 2003, but they became wildly popular four years ago, when insurance rates exploded after a series of hurricanes in 2004 and 2005. In late 2006, with rates rising rapidly, Insurance Commissioner Ken McCarty ordered the discounts doubled.

Trouble was, so many applied for the discounts — including 260,000 of State Farm’s Florida policyholders — that the insurers saw revenues shrink.

Insurers aren’t arguing that the discounts be eliminated, only that they ought to be recalibrated.

This means tackling some complex calculations: Are hurricane shutters worth a 30 percent discount on a premium? Is impact-resistant glass just as effective and deserving of the same discount?

Another question that has been raised: Should people who do nothing to protect their homes — no shutters, no roof straps, no reinforced doors — be slapped with a surcharge?

Gary Harger, president of Cypress Property & Casualty Insurance, believes a mixture of discounts and surcharges is the answer.

State Farm, which has led the charge for reexamining the discounts, is a lame duck player in the Florida insurance business. It has announced its intention to stop writing property insurance in Florida in the next two years. The company’s Florida subsidiary could be insolvent within three years if the current setup isn’t adjusted, State Farm says.

But the company still has clout. On Thursday, the Office of Insurance Regulation cut State Farm a break when it ruled the company can reduce or eliminate discounts for installing burglar alarms or having multiple policies with the company. The net impact: Premiums will rise from 5 to 20 percent.

But the wind mitigation discounts — which reduce the average policyholders’s premiums by 13 percent — remain intact for now.

The current structure of discounts was based on 2002 research. Since then, there have been improvements in building materials and practices that presumably make homes more wind resistant.

McCarty ordered a new study of wind mitigation that was delivered last October.

The Florida Commission on Hurricane Loss Projection Methodology — made up of regulators, industry and academic representatives — will go over the new research as part of the review that begins Wednesday.

One potential problem is that the various computer models that insurers and reinsurance companies base their rates on value mitigation credits differently, said Jack Nicholson, executive director of the Florida Hurricane Catastrophe Fund and a commission member.

The way homeowners put in for their hurricane discounts is also the subject of some wrangling.

Homeowners who make improvements must have an expert — an architect, engineer or building inspector — certify that the work was done. Those inspection reports are then turned in to insurers to trigger the discounts.

Insurers and some legislators are concerned that, with so much money at stake, inspectors are signing bogus certifications. Insurers have started to reinspect homes to ensure that the work was actually done.

Bressner, whose job as Boynton Beach city manager requires him to be away from home during a hurricane, spent $16,600 to make sure his home could withstand a powerful storm. He knew firsthand about the dangers — his roof was wrecked by Hurricane Wilma.

In addition to shutters, the reinforced garage door and impact-resistant front door, he got impact-resistant rear sliding-glass doors and a hurricane screen to protect a hard-to-reach window.

His reward was a 72 percent break on his State Farm homeowners insurance premium, which fell from $8,905 four years ago to $2,543 this year.

Safety was the main goal, Bressner says, ”but the premium reduction was a very nice savings to the bottom line.”

Now, it looks like he might take a direct hit, not from a storm, but from the people who insure him against one.