Higher Sinkhole Insurance Rate Hikes Approved

July 28, 2011

Calling the proposed rate increases painful but necessary, Citizens Property Insurance Corp.’s Board of Governors on Wednesday unanimously approved sinkhole premium increases for 2012 that will cause rates for coastal homeowners to skyrocket, some by thousands of dollars a year.

Meeting via conference call to adjust the sinkhole rates, board members and Citizens’ staff said they are bound by the passage of a new state law (SB 408) to set rates for sinkholes that are actuarially sound.

“We recognize that the need for sinkhole coverage is enormous,” said Citizens CFO Sharon Binnon. “This fact is not lost on us but this is about Citizens’ past experience…. These rates are the direct result in the explosion of claims.”

Non-sinkhole related Citizens coverage, which is capped by law at 10 percent a year, will increase by a statewide average of 8.8 percent in 2012.

The proposed sinkhole rates have come under fire on a number of fronts, including from Sen. Mike Fasano, R-New Port Richey, whose region will see some of the highest premium increases for sinkhole coverage. Fasano made numerous, unsuccessful attempts to amend the legislation to reduce the hit on policyholders in sinkhole prone regions of the state.

“There are people who live in sinkhole prone areas that could potentially be forced out of their homes due to these rate increases,” Fasano said in a statement prior to the vote. “Homeowners who have lenders that require sinkhole coverage will have to come up with huge amounts of money that will be hard to find, especially during these rough economic times.”

Under the new law, Pasco County coastal residents, according to Citizens estimates, will see average sinkhole premiums jump from $441 to $4,017, an increase of 810 percent for the optional coverage required by some – thought not most – mortgage lenders.

During the half-hour teleconference, Citizens staff said although many of the proposed premium increases indicate incredible percentage increases, the actual increased costs are far less dramatic. In Jackson County, Citizens rates for sinkhole coverage increased by 6,461 percent. The actual rate increases from 68 cents to $44 a year.

Regardless, the rate hike drew harsh criticism from former Florida Insurance Consumer Advocate Sean Shaw, who now works for a law firm that represents sinkhole claimants.

“The Board of Governors vote today was unanimously brash, devastating, and irresponsible,” Shaw said following the vote. “The only thing standing in the way of the big bang of sinkhole costs is the Office of Insurance Regulation – they must protect consumers.”

Despite facing no big hurricanes since 2005, the industry continues to lose money from covering people in Florida, with sinkhole claims a big part of that, insurers contend. In addition to having to pay old, re-opened hurricane claims, the companies have been hit hard with a huge spike in sinkhole claims in recent years, particularly in the area north of Tampa Bay.

Last year, Citizens collected about $32 million in sinkhole premiums but paid out more than $245 million in claims, Binnon said, a trend that has also hit private property insurers who contend the spike can’t be related to a geological change, but is more likely due to savvy attorneys, public claims adjusters and inadequate protections in Florida law.

The bill gave the industry ways to reduce payouts in sinkhole claims, including a two-year limit on claims, more stringent definitions of what a sinkhole is, and more clout during the claims appeal process.

For Citizens, which now handles 1.4 million policies, most of which are in the most hurricane and sinkhole prone regions of the state, the law clearly stated that going forward, Citizens rates must mirror the sinkhole risk, which unlike hurricane coverage is not based on future probability but on solely on past experience, Binnon said.

Board member Carlos LaCasa raised concerns over the inability of buyers to obtain mortgages without optional sinkhole coverage. Citizens staff said most lenders do not require it but the number of lenders who do is increasing. In addition, federally backed lender Freddie Mac requires the coverage, though Fannie Mae does not.

By Michael Peltier
The News Service of Florida

Comments

2 Responses to “Higher Sinkhole Insurance Rate Hikes Approved”

  1. David Huie Green on July 28th, 2011 12:48 pm

    REGARDING:
    “Last year, Citizens collected about $32 million in sinkhole premiums but paid out more than $245 million in claims,”

    If you build in a place likely to be swallowed up into the earth, you are asking for trouble. If you insist on building there, please explain why others are responsible to cover the expenses related to your decision.

    I was fishing beside a sinkhole in Dixie County one time when we heard a strange sucking sound. Daddy told us to get back. A few seconds later a small sinkhole formed where we’d been standing.

    We caught fish out of the new sinkhole. (It was part of the Steinhatchee River which spends as much time underground as above ground. People around there had enough sense to not build over the river.)

    Houses don’t have to be everywhere.

    David for wise choices

  2. David burton on July 28th, 2011 6:07 am

    I can see that they have to raise the rates but not to the point where people can’t buy a house. I wonder how many claim’s are not real claim’s. I would see a 10 present increase. More people are going to loose there homes if this happen’s.

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