Posted on 03 Aug 2011
Insurance Commissioner Kevin McCarty said Tuesday that he is prepared to phase in the massive rate increase for sinkhole insurance to soften the hit imposed by Citizens Property Insurance board last week.
The Citizens board voted unanimously to recommend rate increases of more than 2,000 percent in parts of Tampa Bay and an average of 429 percent statewide after the Legislature lifted the cap on rates. But McCarty said the board may have failed to take into account provisions in the law designed to reduce the company’s losses by targeting insurance fraud.
“We can’t base future rates based upon past losses, especially when you have intervening legislation,’’ said McCarty, chief of the Office of Insurance Regulation, which has final approval over the rates at the state-run property insurer.
But McCarty warned a rate increase is inevitable for homeowners who rely on the insurance to pay damages for splitting foundations caused by sinkhole damage. Legislators cap annual rate increases on Citizens’ policies at 10 percent a year, and that has artificially suppressed what they could charge. But legislators lifted the cap for sinkhole claims as part of major insurance reforms passed during the 2011 lawmaking session, and that “had an upward pressure on rates,’’ McCarty said.
McCarty told the governor and Cabinet that even if some rate increases are warranted, his office will determine how much savings Citizens will experience from the part of the legislation aimed at cracking down on sinkhole insurance fraud. The goal of the changes is to reduce both the number of claims and the losses experienced by Citizens.
Last year, Citizens collected about $32 million in sinkhole premiums but paid out more than $245 million in claims.
Chief Financial Officer Jeff Atwater was also critical of the Citizens’ board for recommending policyholders get hit with a giant increase at once. He said the board had the ability to phase in rates but instead went too far, too fast and failed to take into account future savings.
“You can’t go through all the changes that are going to have great benefit and then come out and drop a rate on the people that is nothing but a look back,’’ he said.
McCarty said the Citizens board was also following a requirement in the legislation that they impose financially responsible rates, but in the process made the rates so expensive they will be unaffordable for many homeowners.
“There is a balance,’’ he said. “I will be vigilant.”