Florida Agents Say Home Mitigation Effort Is Riddled with Fraud, Inefficiencies and Errors

Florida’s efforts to encourage homeowners to harden their homes to better withstand big storms by giving them insurance premium discounts is not getting the job done, according to a report from insurance agents in the state.

The agents say faulty implementation by the state’s insurance regulator — including a misplaced emphasis on granting insurance credits over making sure mitigation efforts are effective — and apparent fraud in the inspection process are largely to blame.

They also say homeowners are being led to believe they are safer, when they are not, and the system is contributing to woes in the state’s property insurance market.

The Florida Association of Insurance Agents (FAIA) issued a report to the Florida Commission on Hurricane Loss Projection Methodology outlining its concerns with the mitigation initiatives. The white paper claims the program is falling well short of its goals.

“The Office of Insurance Regulation’s singular focus on cutting premiums at any cost has mortgaged Florida’s future,” said FAIA President and CEO Jeff Grady. “A more thoughtful approach is urgently needed to strengthen Florida’s housing inventory against natural disasters.”

Florida’s mitigation initiatives were implemented several years ago in an effort to encourage homeowners to harden their homes against storms, using insurance premium discounts as an incentive.

FAIA found varying degrees of both “active” and “passive” fraud at all levels of the state’s mitigation efforts, including misconduct by inspectors, insurance companies, agents and homeowners — all of whom the report alleges either give, accept, or intentionally overlook “false” inspection reports used to verify a home’s wind mitigation characteristics, such as storm shutters.

“The original intent of the premium credit system was to motivate homeowners to harden their homes,” said Grady. “However, it doesn’t work if homeowners get the credits without having to make the upgrades. Even worse, they get an inflated credit for something that doesn’t really protect their families or their home in the event of a storm.”

The report cites instances of drive-by inspections that result in premium credits being awarded where none are warranted. In other cases, homeowners are promised that the inspection fee of about $150 is “guaranteed” to be offset by premium savings resulting from the inspection. It cites one report of inspection companies giving insurance agents $25 gift cards for every inspection of $125 or more, or agents being paid finder’s fees. In more blatant cases, an inspector and an agent had actually preprinted uniform mitigation forms, so they only needed to change the name and address of the homeowner when submitting it to companies. One inspection company was pre-signing blank reports for a fee, according to FAIA.

Insurance companies may also be involved in fraud through their tolerance or even encouragement of false inspection reports. A direct response Internet insurer was discovered applying false credits to as many as 35,000 policies. FAIA says it discovered one report of an insurer requesting kickbacks for referring customers to a specific inspection company.

FAIA said its interviews with insurers reveal that as many as 55 to 80 percent of inspections may have errors.

“Whether an insurer, agent, inspector, or consumer, one consistent theme we uncovered is that a public message emphasizing only premium savings appears to justify fraud in the minds of those committing it, especially when, as in this instance, there is little or no oversight or enforcement,” the report says.

The report says the flawed premium credit system leads homeowners to believe their homes are safer than they really are. “This false sense of security ultimately could result in the loss of lives — lives that could have been saved if homes were hardened appropriately,” the group warns.