Two significant pieces of information show a continued trend in the property insurance business and suggests that insurance customers should not rely on the loyalty of their insurance companies. An article by Bea Garcia in the Miami Herald, Florida May Gut Discounts for Hurricane Shutters highlights the industry wide issues raised by State Farm’s requests to eliminate discounts and “recalibrate” the terms of previously granted discounts for measures taken to protect structures from hurricane damage.

My longstanding view is that “hardening” of structures is important public policy for coastal states. It should be encouraged and reflected in rate regulation, building codes, and taxation policy. The best loss is one that does not happen. The second best loss is one which is less severe as a result of preventative measures.

On Thursday, the Florida Office of Insurance Regulation issued a letter responding to State Farm’s requests for the elimination of certain discounts. It approved many, but also called for State Farm to provide greater information regarding the issue of eliminating or reducing rates for those who “hardened” buildings in return for lower premiums:

“The changes to State Farm Florida’s mitigation credits contained in this file are not approved. As discussed on prior occasions, an alternate mitigation credit is allowable under Florida regulations; however, such credits must be supported by a “detailed study” pursuant to Section 69O-170.017, Florida Administrative Code and other pertinent regulations. If State Farm Florida chooses to file alternate mitigation credits in accordance with the rule, the study of the alternate credits may best be performed by the proprietor of the model to ensure explicit documentation as provided in the current approved ARA study. Some items of significance that should be addressed in the study, if one is conducted, include but are not limited to:

1. Explicit documentation with respect to the reflection of all code wind speeds.

2. Explicit support for the selected base structure. This should include an explanation of how it complies with Section 627.0629, Florida Statutes and the following data:

a. The expected hurricane losses in total
b. The expected hurricane losses for each group of discount features
c. The expected hurricane losses for policyholders receiving no discount

3. Discounts must reflect all features that reduce windstorm loss. Further, areas with a higher resistance to wind speed must reflect higher discounts.

4. Include detailed support to show base rates are consistent with the base risk that is not receiving mitigation discounts.”

The important thing for everybody to notice in the Miami Herald article is that State Farm is not the only insurance company behind this. A number of elected officials who cater to the insurance industry and Citizens Property Insurance Corporation (which is part of the Florida Government) obviously conspired with others to break the promises made to Floridians:

“…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.”

If our elected officials and those regulating our insurance industry in Florida want to know what the insurance industry hopes to gain from this new maneuver, now and in the future, they should request records from Citizens Property Insurance Corporation, which is a governmental-not private-entity. They should ask for Citizens’ officers and managerial employees to explain all their discourse with other insurers, legislators and lobbyists regarding this topic for the past several years.

We should also applaud all the elected representatives that stand up to the insurance companies. Before the next election cycle, I plan to draft a detailed outline for everyone to review that delineates which elected officials in Tallahassee are really for policyholders versus those who work for the insurance industry. The advertisements by some politicians were completely fraudulent on this last year. It’s about time that the local electorates understand who really works for them and who works for Big Insurance.