Florida’s Citizens Seeks 6.6% Home Rate Hike; Cap on Sinkhole Rates in High-Risk Areas

Florida’s state-backed property insurer requested a statewide average 6.6 percent increase in homeowners’ rates along with a cap on sinkhole rate increases in three high-risk counties at between 20 percent and 50 percent.

Citizens Property Insurance Corp. officials signed-off on its annual rate filing. If when approved by regulators, it will apply as of January 2014 and raise $174 million in premiums next year.

The filing calls for a statewide average increase in all lines of seven percent that includes a 6.6 percent increase in homeowners rates an average 9.1 percent increase in commercial policies. If approved as filed, the average homeowners rate in 2014 would be about $2,112 for non-sinkhole coverage.

“The rates approved by the board indicates that Citizens is moving in the right direction,” said Citizens President Barry Gilway. “The board continues to make the tough but necessary decisions while recognizing the impact on Citizens policyholders.”

By law, the insurer’s rate increases are subject to the so-called glidepath, which caps average increases at 10 percent, plus a separate percentage that is earmarked to build up the reserves of the Florida Hurricane Catastrophe Fund.

The only exception to the 10 percent cap is sinkhole rates. Based on a 2011 law, rates for the optional coverage are required to be actuarially sound.

Citizens officials calculated that in 2012 the insurer collected $56.7 million in sinkhole premiums compared to $184 million in losses. The 2011 legislation was designed to close that gap by instituting a more technical definition of what constitutes a sinkhole, placing a statute of limitations on filing sinkhole claims, and allowing insurers to calculate a sinkhole loss based on the actual cash value of the property.

The legislation is projected to eventually reduce sinkhole losses by 54 percent and there are signs the law is working as intended. Citizens officials said that in the first quarter of this year, new sinkhole claims were down by 52 percent compared to last year. As a result, officials said, moving to actuarially sound rates would have a negligible effect on policyholders’ premiums in 64 of the state’s 67 counties.

However, in the high-risk sinkhole areas of the state that comprise Pasco, Hernandez and Hillsborough counties, moving to actuarially sound rates would have a significant impact on policyholders’ premiums. To soften the impact of sinkhole premium increases on policyholders, Citizens has taken the approach of phasing-in the rates by limiting the annual increases.

Last year, Citizens projected it needed a 263 percent sinkhole rate increase to reach an actuarial sound rate, but opted to request an average 29.6 percent increase. Regulators eventually approved a 21.4 percent increase. This year, the insurer projects it needs a 223 percent sinkhole rate increase in homeowners rates, but is proposing to cap the change at 28.1 percent.

Even so, policyholders could see significant increases. In Hillsborough County, the insurer recommended capping sinkhole rates at 50 percent, which would result in an average $185 premium increase.

When it comes to Pasco and Hernandez counties, the premium increases would be significantly higher. Citizens officials recommended capping sinkhole rates in those counties at 25 percent, which could still mean an average $450 increase per homeowner.

Florida Consumer Advocate Robin Westcott opposed the increase, which she said would be a significant hardship on policyholders in those two counties.

“If the average premium on a house valued at $215,000 is $1,200 and they are asked to pay another $450 that is very pricey,” said Westcott.

Board member John Rollins, however, expressed concerned that if Citizens did not adhere to the statutory mandate calling for rates to be actuarially sound it could affect the insurer’s long-term credibility with state lawmakers and other officials. As a result, he said, it could potentially make it harder to convince lawmakers to provide the insurer with any needed legislative assistance.

“The legislature could say we passed a statute a few years ago and you did what you wanted anyway, so why should we trust you now,” said Rollins.

Rollins also said that since sinkhole coverage is optional, each homeowner could decide whether to purchase the coverage. It is estimated that 80 percent of homeowners in Pasco and Hernandez counties are not covered for sinkhole damage.

Board members floated several ideas including capping sinkhole rate increases in Pasco and Hernando counties at 10 percent or limiting any one policyholder’s premium increases to $250. Citizens officials said that such a dollar cap would reduce the insurer’s projected $180 million increase in sinkhole premiums by $13 million.

After further discussion, Citizens officials opted to reduce the proposed sinkhole rate increases in Pasco and Hernando counties from 25 percent to 20 percent.

In addition to the homeowners’ rate increase, Citizens also signed-off on several other increases. On commercial properties, officials approved an average 7.3 percent increase that includes an 11.3 percent increase in commercial residential and non-residential wind policies.