Citizens Property Insurance policyholders could be facing a dramatic rise in their sinkhole coverage. Its board voted 4-0 Wednesday to increase sinkhole premiums for homeowner policies by 430 percent statewide.
Board members cited the sharp rise in sinkhole claims and the company's subsequent losses as the need for the increase. In 2010, Citizens took in $32 million in sinkhole premiums, but paid out $245 million in claims.
Citizens' Chief Financial Officer Sharon Binnun said she understands the sticker shock many policyholders still suffering from an anemic economic recovery will feel, but the company is obligated to secure actuarially sound rates.
This impact is not lost on us, but this rate is based on Citizens' actual loss experience, Binnun stated.
Some areas won't see any change in their sinkhole rates, but areas prone to claims will see large increases. Policyholders in the Tampa section of Hillsborough County, for example, could see their rates rise from $156 to $3,651, an increase of 2,238.5 percent.
The sharp increases will likely prompt some of Citizens 1.3 million policyholders to drop their sinkhole coverage. Binnun noted that sinkhole coverage is not required in order to obtain a homeowner policy with Citizens, but it is a prerequisite for many mortgage companies across the state before they lend to potential homeowners.
Sen. Mike Fasano, R-New Port Richey, cited the effect on Floridas dismal housing market when he argued against SB 408, which eventually passed into law and allows Citizens to charge actuarially sound sinkhole rates. During committee and floor debates over the bill, Fasano argued that sinkhole rate hikes would prompt an exodus of homeowners from Florida who couldnt get home loans without sinkhole coverage.
Hes concerned that people could lose their homes if they live in an area where some of these premiums could be going up by 100, 400, 2,000 percent, said Fasano spokesperson Greg Giordano.
Before the Citizens vote, Binnun played down the potential effect on the housing market, noting that while federal home lender Fannie Mae requires sinkhole coverage, its counterpart, Freddie Mac, doesnt.
By and large, the info that weve received is that the majority of the market does not require it, Binnun said.
The proposed rate increase must be approved by the state Office of Insurance Regulation before taking effect, but Fasano is calling on the OIR to hold hearings throughout the state before making a decision on the rate hike request.
Typically, the OIR will hold a hearing in Tallahassee in which insurers will justify their rate request, but Fasano wrote to OIR Commissioner Kevin McCarty asking him to conduct statewide hearings.
In light of these almost incomprehensible rate increases, I respectfully expect that all Floridians be given the chance to have their voices heard on this issue before the Office of Insurance Regulation rules on the application. Hearings held throughout the state, especially in those areas which will receive the highest rate increases, must be held before the application is given consideration, the letter reads in part.
Fasano recently made a similar request for local hearings on proposed rate increases for Aqua Utilities customers, which was granted by the Public Service Commission.
The spike in sinkhole claims in recent years has led some to doubt the veracity of the claims, some of which may hinge on small cracks in a homes walls or driveway. Christian Camara, Florida director of the Heartland Institute, a nonprofit organization that promotes free-market ideas, applauded the proposed increases.
The spike in sinkhole claims is not due to some change in Floridas geology, but rather to many individuals who have used sinkhole claims as lottery jackpots. This is unsustainable and, unfortunately, the time to cover these losses has come, Camara said.
The OIR has 45 days after receiving the rate request application from Citizens to make a determination.
Reach Gray Rohrer at grohrer@sunshinestatenews.com or at (850) 727-0859.
