Effects of Wind Mitigation Credits on Florida Home Insurance Market

For the past years devastating hurricanes have hit Florida which caused a lot of losses to lives, and property. Subsequently, premium insurance rates have rapidly increased. Because of this, the state legislators encouraged the residents of Florida to make their houses more resistive to winds. Once a house is proven to have great resistive features through a certificate issued after a Wind Mitigation Inspection, discounts on the windstorm portion of the total premium insurance will then be given. This was made effective on March 1, 2002 when the new state-wide building code was revised. Finally, in 2003, windstorm insurance rates were made available for homeowners to take advantage.

After the hurricane hit Florida

Though this program has brought a lot of benefits to homeowners (owners of Condos, Townhouses, Single Family Home, Multi-Family Buildings, and Commercial Buildings) in Florida, the insurance industry have different reactions on it. One part of the market is optimistic in wind mitigation credits while the other strongly disagrees to it. For those who are optimistic to it, to them, wind mitigation discounts are justified because houses with stronger, more wind-resistive features have lower losses during hurricanes. After a hurricane, pro-wind mitigation credit insurers are confident that they will have fewer costs in repairing a house. On the other hand, other insurance companies criticize this kind of regulation. According to them, there are several reasons why this wind mitigation credits should be removed. First, it cost them to loose a lot of money. The implementation of these credits caused these companies to earn fewer profits and thus makes these companies weaker. Third is that, they are unsure whether all of these houses are truly wind-resistant or not. Insurers fear that if hurricanes hit Florida, these houses, though proven to be wind-resistive by a Wind Mitigation inspector might still be greatly damaged. In short, these insurers do not find these credits being justified.

a wind resistive house (wind resistive windows)

Today, the wind mitigation credits on premium insurance continue to give benefit to the residents of Florida. But in reality, insurers are also on the verge of surviving from these discounts. In fact, nine insurers (in four different insurer groups) that write residential property insurance in Florida experienced rating downgrades by A.M. Best in 2009. This was due to a significant deterioration in earning and risk-adjusted capitalization from a sharp decline in premiums due, in part, to the implementation of windstorm mitigation discounts (Business Wire 2009). Also, according to a speaker in a formal meeting in Florida, fifty-eight to seventy-eight percent of all mitigation reports provided to insurers have errors of some nature. These errors are due to fraud, inspector inexperience, or data entry. In order to clarify all of these, the government suggested that insurance company should review the wind mitigation discounts given to homeowners to ensure that all of these homes have construction features that are truly strong and wind resistant. Likewise, insures are now conducting re-inspections that are concrete and unbiased.  Policyholders are also requested by the government to report immediately if they have complaints against insurance companies.