Responding to criticism from customers in a handful of sinkhole prone counties, Florida insurance regulators late Monday approved a slate of scaled-back sinkhole premium increases for policyholders in the state-backed insurance pool.
The Office of Insurance Regulation signed off on new rates for Citizens Property Insurance Corp., – now the largest property insurer in the state – but not before slashing proposed rate hikes for sinkhole premiums that in some cases were originally slated to increase by thousands of dollars a year.
Instead, OIR approved a schedule of premium increases for 2012 that raise sinkhole rates by a statewide average of 32.8 percent, less than one-tenth of a proposed 447-percent increase that the Citizens’ board voted in July to request.
Florida Insurance Commissioner Kevin McCarty said Citizens did not adequately justify the rates it had proposed and that changes made by lawmakers earlier this year would reduce future losses, thus alleviating the immediate need to boost rates in some cases by more than 2,600 percent.
“The office’s decision is intended to reflect the Legislature’s intention to give Citizens actuarially supportable rates for the sinkhole portion of the premium,” McCarty said in a statement. “Although more credible data and study is required, these established rates will start Citizens on the path of having a sound rate for their sinkhole risk.”
Critics of the original rate hike hailed the agency’s decision to cushion the blow of increases that in a handful of counties would have amounted to sinkhole rates climbing by nearly $1,000 a year even after Citizens board voted last week to phase in the rates and cap increases next year at 50 percent.
“This is a victory for consumers,” Sen. Mike Fasano, R New Port Richey, said late Monday after OIR released the new approved rates. “I applaud OIR and Commissioner McCarty for their decision, which will allow some people to stay in their homes.”
Fasano said the ruling will also result in lower than expected rates for non-Citizens policyholders by preventing private carriers from raising rates to match Citizens’ hikes.
Industry representatives, however, have said that as long as Citizens rates remain artificially low, private carriers will not return to offer coverage and reduce Citizens’ exposure.
The agency’s decision will have the most impact in a handful of counties that make up “Sinkhole Alley.” Pasco and Hernando county customers will see sinkhole rates increase by about $300 instead of the $4,000 to $5,500 that Citizens had originally requested. Policyholders in Hillsborough County will see increases of about $100 instead of the $3,200 increase that Citizens had set in July.
Citizens officials have said they were required to ask for the hefty increases after lawmakers passed SB 408 earlier this year. Among its many provisions, the bill requires
Citizens to charge “actuarially sound” rates for sinkhole coverage.
Last year, the company collected $32 million in sinkhole premiums, but paid out nearly $250 million in claims. Without the changes, Citizens officials said last week that losses next year could eclipse $550 million. Even with the law, the insurer said it will still lose $219 million. That’s by no means “actuarially sound,” as lawmakers have required, the company says.
In its final ruling, the agency said changes made by lawmakers in SB 408 may likely result in substantially lower losses going forward as a number of provisions kick in that reduce the scope of sinkhole coverage offered by Citizens. The agency also stressed that Citizens rates could not be raised to recoup past losses but must be based on expected future risk.
After taking testimony and grilling Citizens actuaries last week, OIR determined that the state-backed insurer failed to make its case.
“Although the frequency and severity of sinkhole claims has increased dramatically over the past two years, and some rate need exists prospectively, the office finds that the rate requested by Citizens for the sinkhole peril is not supported by any study or any credible evidence that it accurately predicts the rate needed after implementation of the new law,” the agency wrote.
By Michael Peltier
