Citizens sinkhole rate increase slashed to 32.8%

Posted by on Sep 20, 2011 | 0 comments

Published: September 19, 2011
Updated: September 19, 2011 – 10:58 PM
TALLAHASSEE –State regulators agreed on Monday night to increase rates for optional sinkhole insurance, though not nearly at the rate Citizens Property Insurance had requested.

Citizens’ proposal would have jacked up rates by more than 2,000 percent in some areas, including Hillsborough County.

Under the new rates, Pasco and Hernando counties will see average increases for sinkhole insurance of $300 to $400 as opposed to the $4,000 to $5,500 that Citizens had requested, according to State Sen. Mike Fasano, R-New Port Richey. Hillsborough will see increases of about $100 as opposed to the $3,200 increase that was requested, he said.

Statewide the increases on average for homeowners are 32.8 percent, according to the Office of Insurance Regulation. The original rate requested was more than 400 percent. Fasano, who led a campaign against the rate hikes, said he was pleased and considered it a victory for property owners.

“This is the great effort by everyone that sent a clear and resounding message to Tallahassee that the people can’t afford the rate increase that Citizens was requesting,” Fasano said.

The rate increase will take effect Jan. 1.

Citizens board members proposed in July to raise sinkhole rates statewide by 430 percent on average to make them actuarially sound. In the Tampa Bay area — nicknamed “sinkhole alley” because of insurers’ losses on claims there – that would have translated to increases of 2,200 percent in coastal Pinellas County, and 2,400 percent in Tampa.

The Citizens board had agreed last week to implement the rate hike gradually, over multiple years, following outcry from consumer advocates and state leaders about the severity of the proposed increase. But the board set no timeline for phasing in the full increase, or set any limits on how much of the rate hike could take effect in a given year.

The board’s Sept. 12 meeting preceded a packed rate hearing in Tampa the following day, where hundreds of affected residents came out to oppose the proposed increase.

But while policyholders protested that they could not afford the cost, Citizens chief financial officer Sharon Binnun said that the frequency of sinkhole claims has doubled in the last 12 months. Last year, Citizens incurred $245 million in sinkhole losses, she said, while earning just $32 million in premium.

Sinkhole coverage is an optional line of insurance, though some mortgage lenders require it. Standard property insurance must cover “catastrophic ground collapse” — an extreme event that renders a property uninhabitable — while sinkhole coverage compensates for lesser damage, like cracks in a wall.

Insurers told lawmakers this spring that frequent and fraudulent sinkhole claims are causing an industry crisis. In response, the legislature and Gov. Rick Scott narrowed the definition of a payable sinkhole claim, narrowed the window for filing a claim and let insurers require policyholders to spend their entire payout on repairs.

Those reforms appeared in the same legislation that enabled Citizens to request actuarially sound rates for sinkhole coverage right away. Increases for standard Citizens coverage remain capped at 10 percent a year.

Last week, analysts for Citizens insisted that they had factored in potential savings from the sinkhole insurance reforms when calculating an actuarially sound rate. Had they not, they said, their rate request would have been 60 percent higher.

Fasano said residents need to remain on top of the issue because Citizens can propose increases next year.

“We have to stay vigilant and keep a close eye on Citizens,” Fasano said.

Sean Shaw, founder of the Policyholders of Florida, said Floridians can’t stop the fight even after what he considered a minor victory.

“The fight for policyholders is never over,” Shaw said. “While this rate hike approval is much less terrible than the original plan, it still hurts, and there is no reason to believe that it won’t be much worse next year.

Reporter José Patiño Girona contributed to this report. (850) 222-8382

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