Florida’s Citizens to Seek Competitive Bids on Part of Reinspection Contract

January 27, 2010

Florida’s state-backed property insurer will seek competitive bids on part of a contract to reinspect as many as 400,000 properties that have been awarded $700 million in mitigation discounts off their insurance premiums.

Citizens Property Insurance Corp. said it would proceed with the initial phase of the reinspection program under a no-bid contract it awarded last October but will seek competing bids for the contract for the remaining inspections if they are warranted. The initial phase, inspecting 500 to 1,500 properties, is expected to take up to nine months.

Last October, Citizens awarded the contract to a Jacksonville firm, Inspection Depot. Florida law requires competitive biding on all contracts valued at more than $25,000 unless it is an emergency purchase. The insurer acted without seeking competitive bids, arguing that validating the more than $700 million in mitigation credits qualified as an emergency.

Rather than build and staff an in-house inspection team with field workers, Citizens opted for contracting with an inspection management vendor. “It is crucial to begin this project as soon as possible to identify potential premium leakage and protect the financial interests of all Floridians,” the insurer said in its bid document.

But SagoTec Group, a Georgia inspection vendor, filed a suit challenging the no-bid award to Inspection Depot.

Also, state CFO Alex Sink, in a meeting with and letter to Citizen’s Chairman Jim Malone last week, urged the Citizens board of directors to put the contract out to bid, which the board yesterday voted to do with the second phase.

A decision whether to actually proceed with the second phase of reinspecting all 400,000 properties will not be made until after the results of the initial phase are analyzed, according to Christine Turner Ashburn, legislative director for Citizens, who estimated that only abut 200 inspections have been completed.

“This is likely one of the most important projects Citizens has ever undertaken and we stand by our need to get things rolling quickly. Recognizing the importance of this project and in light of concerns raised by a variety of sources, we have decided to shorten the emergency contract with Inspection Depot to six to nine months while we simultaneously go through a competitive solicitation for a longer term contract which could include our ordering re-inspections of all 400,000 risks with mitigation credits, if the data supports doing so,” Turner toldInsurance Journal.

The total contract value could reach $60 million if inspections are done on the 400,000 existing policies and new submissions, at $150.00 per inspection. Under the no-bid contract, Inspection Depot is to receive an administrative fee of up to $10 million while the rest of the $60 million would actually go to the subcontractors performing the inspections.

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

Last year, Citizens vowed to review its mitigation credits after a report alleged widespread fraud in property insurance inspections.

In August, the Florida Association of Insurance Agents (FAIA) issued a white paper that questioned the inspections by Citizens and private insurers in the granting of mitigation credits to homeowners.

FAIA said its research revealed that reinspections found that as many as 55 to 80 percent of inspections may have errors.

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.

Scott Johnson, FAIA executive vice president, said Citizens is to be commended for attending to the inspection issue.

“Citizens book of business has more fraud in the inspections because its risks are nearer the coast and the benefit of the percentage credit is much higher,” Johnson said.

He said FAIA has no position on the competitive bidding process.

Florida Insurance Commissioner Kevin McCarty has acknowledged there may beproblems, including fraud, with the program. He has also said the state might have to augment its fraud investigation efforts surrounding the mitigation program.

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