Florida's largest property insurer, Citizens Property Insurance Corp., authorized rate increases for nearly 1.5 million policyholders on Wednesday that could cost some homeowners needing sinkhole protection up to several hundred dollars more each year.
Citizens board approved an average hike of 32.8 percent on sinkhole policies for homeowners and 6 percent for standard coverage. The board initially sought higher rates, voting in September to cap rate hikes for sinkhole coverage at 50 percent in 2012. But state regulators cut that to a statewide average of 6.2 percent for standard coverage and a cap of 32.9 percent for sinkhole policies.
The sinkhole problem won't go away soon, either. Board members were told that the average loss in sinkhole claims was about $60,000 and more claims are being filed.
"We will certainly experience more sinkhole claims this year than we did last year," said Citizens President Scott Wallace, who noted that a majority of the insurer's business is on older, lower-value homes. Most of the new business is being written in southeast Florida and the Tampa area.
"We continue to see a steady flow of new applications with no end in sight," Wallace said.
The Citizens board voted during its half-day Orlando meeting to go ahead with the approved rates, but not phase in the increases as first planned. The new rates on homeowners' and dwelling fire policies take effect on Jan. 1 for new and renewal multi-peril business, and Feb. 1 for new and renewal wind-only business.
The Legislature passed an omnibus bill (SB 408) in May that they hoped would drive down costs for private insurers and stabilize the state's fragile property insurance market. It eliminated a 10 percent statutory cap on sinkhole rates and also enacted fundamental changes to reduce sinkhole losses.
It would also have allowed Citizens to boost rates to whatever level it believed necessary to offset losses.
Insurance Commissioner Kevin McCarty, however, said regulators didn't believe Citizens adjusted for the cost savings that were provided for by the new legislation.
The panel received a report on 2011 sinkhole losses and discussed ways to slow down the company's rapid growth that increases risk for Florida taxpayers, who are on the hook if the state-backed company is unable to pay claims in the aftermath of a major hurricane or series of damaging storms. Citizens, which claims $11 billion in assets, received about $32 million in premiums for sinkhole coverage in 2010 compared to losses and loss-related expenses estimated at $245 million.
All insurance carriers in Florida reported a total cost on sinkhole claims in 2010 of $1.4 billion.
The board also debated recommendations on salary and benefit improvements for its employees before voting to keep Blue Cross as its health and dental provider.
Citizens' was created by the Florida Legislature in 2002 by the merger of two existing state-backed insurance pools. It is now Florida's largest insurer of homes, condos and businesses with a book of business approaching 1.5 million policyholders. The nonprofit company with more than 900 employees at offices in Jacksonville, Tallahassee and Tampa is run by an eight-person board of governors appointed by the governor.
The board scheduled its next meeting Nov. 16.