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Hurricane Discounts: Insurers Giveth and They Taketh Away

In the wake of Hurricane Wilma, Florida lawmakers required homeowners insurance companies to double the discounts allowed for hurricane-safe structures for the next plan year. The primary goal was to encourage homeowners to make improvements to their property in order to minimize damage from future storms. Insurers figured the discounts granted would cost less than paying billions of dollars in hurricane claims.

Hundreds of thousands of homeowners, hoping to take their insurers up on the offer, hired inspectors to determine if their homes met the prescribed standards. Insurance companies reviewed the documentation and granted discounts for a couple of years. Then they began to complain that the mandated double discounts were costing them too much.

In 2008 and 2009, the Legislature responded to insurance industry pressure with a handful of new laws targeting dishonest practices among home inspectors and homeowners seeking discounts. One new law that took effect this year imposed stiff penalties on inspectors who knowingly submitted false verification documents. Inspectors must now include photographs of each "hurricane mitigation" (home upgrade). New requirements for inspectors, including hours of training and a proficiency exam, also came on line this past summer.  

New laws also allow insurance companies to send out their own inspectors to verify home upgrades. Insurers must pay for these additional inspections, but critics suggest that such an arrangement will lead to inspectors deciding in favor of the insurance companies.

Finally, the new laws "update" the discount guidelines, some of which have been widely criticized as being too favorable to insurers. For example, garage doors now need a "product approval" designation (a complicated process laid out in statute). If a garage door meets the standards but the manufacturer has not applied for the "approved" designation, it does not qualify. For consumers, the consequences can be loss of the discount: A garage door that was acceptable last year is not acceptable this year based on a technicality.

One experienced home inspector points to roof requirements as another pro-insurer change. In the past, one particularly resilient roof style had to cover 50 percent of a home's walls in order to qualify for the full discount. Under the new guidelines, the same roof must cover 90 percent of the walls.

These law changes can mean big financial hits for homeowners. In our next post, we'll talk about some specific -- and scary -- cases.

Resource: InsuranceNewsNet.com "Home Insurers Revoking Discounts for Hurricane-proofing" 10/1/10

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