Officials Urge Phase-In of Citizens Sinkhole Rate Change
Citizens Property Insurance Corporation got the insurance world talking recently when it announced that rates for sinkhole coverage would increase by an average of 400 percent, and by much higher amounts in certain areas. Citizens’ rate increases are capped at 10 percent per policyholder per year, but the 2011 legislature removed sinkhole coverage from the cap in light of extremely bad sinkhole insurance rates over the last few years. The simple math that Citizens has been paying out far more in sinkhole losses than it collects in sinkhole-related premium led to the proposed rate increases, although some suggest that sinkhole reforms in the recent SB 408 should moderate the impact.
CFO Jeff Atwater responded at last week’s Cabinet meeting by stating that the proposed rate increases should be the subject of a phase-in plan. CFO Atwater’s remarks came during a presentation and comments by Insurance Commissioner Kevin McCarty. Insurance Consumer Advocate Robin Westcott also wrote to Citizens to suggest it should consider incremental changed to the rates rather than one-time increases. Representative Will Weatherford has urged a balance between Citizens’ rate needs and affordability. Meanwhile, Senator Mike Fasano rallies opposition to the increases.
The Office of Insurance Regulation has announced that it will hold public hearings relating to the rate increases. The OIR also indicates it will review the proposed increases carefully to make sure Citizens’ rates are reasonably predictive of future losses rather than an effort to recoup past losses.
Ratemaking in Citizens Property Insurance Corporation is a public policy challenge. No one wants to pay more for homeowners’ insurance. However, Citizens comprises only about 20 percent of the statewide market, so a decision to suppress Citizens’ rates essentially is a decision that a majority of Floridians should pick up the shortfall for for the minority. And while it may be true that no one likes paying higher insurance premiums, the only thing worse than paying more for one’s own insurance is paying for someone else’s. Currently, however, there is more immediacy around Citizens’ proposed rate change than on the potential assessments to be borne by all Floridians, which creates momentum (inertia) around the slow phase-in of Citizens’ rate changes and likely to a phase-in of the sinkhole changes.