Citizens sinkhole coverage could rise by 50 percent in Tampa Bay area

Article Courtesy of The Tampa Bay Times

By Toluse Olorunnipa

Published July 29, 2012

TALLAHASSEE Insurance costs for sinkhole coverage could go up by 50 percent in Pasco, Hernando and Hillsborough counties for homeowners covered by Citizens Property Insurance, after the state-run company approved new rate increases Friday.

Board members voted unanimously to push rates higher for nearly all homeowners, with particularly large jumps in the Tampa Bay area, where sinkhole problems are common. Citizens' 2013 rate plan, which is subject to approval by the Office of Insurance Regulation, also includes a 10.2 percent statewide increase for non-sinkhole coverage.

The average pocketbook impact of the sinkhole rate hike would be roughly $750 in Pasco, $690 in Hernando and $130 in Hillsborough.

That comes on top of the 10.2 percent statewide increase for other coverage, which will cost homeowners statewide about $235 million. Some lawmakers and homeowners wasted no time in blasting the rate hikes, which come at a time when Citizens is reducing coverage and reinspecting hundreds of thousands of homes.

"This is a ploy by Citizens to discourage people from getting (sinkhole) coverage," said state Sen. Mike Fasano, R-New Port Richey. "Tallahassee has no clue what it's doing to homeowners."

The vote reflects the latest effort in an aggressive campaign backed by Gov. Rick Scott to make Citizens more expensive and less attractive to homeowners, and push them into the limited private insurance market.

At a meeting in Miami on Friday, board members said the higher rates were necessary to reduce Citizens' level of risk and make Florida more accommodating to private insurance companies.

Citizens' president, Barry Gilway, said the company was "selectively moving rates higher in a very measured way so that over time, we can be appropriately positioned in the marketplace."

The board decided not to move ahead with controversial plans to charge even higher rates for new customers or to limit claims on water-related losses to $15,000.

The 10.2 percent rate increase takes into account the potential impact a major hurricane could have on the Florida economy, board members said. If Florida gets hit with a once-in-a-lifetime type of hurricane catastrophe, the insurer of 1.4 million policies might have to levy surcharges on consumers to cover its losses. Though Citizens is making about $100 million per month in profit under current rates, company leaders fear its $6 billion cash surplus might not be enough to cover a brutal storm season.

In sinkhole-prone counties, the rate increases foreshadow what will likely be several years of continued annual price hikes of 50 percent or more. Citizens' data indicates that average sinkhole premiums in Pasco County need to rise from current rates of $1,379 to about $9,650 to be financially sound.

The company is looking for ways to reach "rate adequacy," but decided against increases of up to 600 percent for Pasco, Hernando and Hillsborough, opting instead for a 50 percent cap that would put it on a "glidepath" to financially sound rates.

Last year, lawmakers passed SB 408, a controversial bill that was supposed to help fix the runaway sinkhole losses Citizens and other insurers were facing. Citizens says it has suffered more than $1 billion in sinkhole-related losses in recent years.

A new report commissioned by Citizens shows that SB 408, which severely limited homeowners' options for making sinkhole claims, will probably reduce losses at Citizens by about 55 percent this year. But that was not enough to stop another round of massive rate increases.

"What happened to SB 408?" asked Fasano, who protested against the bill last year. "SB 408 was supposed to solve all the problems that sinkholes created for Citizens and the private companies. Here we are almost a year after 408 goes in place, and Citizens is still asking for huge rate increases."

Consumer advocates and some lawmakers spoke out against the proposed rate hikes, saying homeowners have already been hit hard enough. The $235 million hike comes at a time when Citizens has reduced its coverage and eliminated more than $135 million worth of discounts through a massive reinspection program.

Citizens has inspected more than 225,000 homes since last year, and about three in four homeowners have lost discounts after an inspection. On average, premiums have gone up by about $600 after an inspection.

Citizens board members said they were taking homeowners into account when they opted not to remove the 10 percent cap for new customers. That would have caused rates to skyrocket for those who join Citizens in 2013.

There was also a lot of heat from local lawmakers, who didn't mince words when they heard about the proposed cap removal.

Fasano, who has been one of Citizens' most vocal critics, said the board was "absolutely clueless" to raise rates during a time of high unemployment and foreclosures.

"I'm frustrated, I'm disgusted," he said. "Shame on Citizens' board for even pushing this at an economic time when homeowners are barely getting by."