After Nixing Water Damage Limit Proposal, Citizens Property Insurance Approves 8.8 Percent Statewide Average Rate Increase, Sinkhole Rate Hike Phase-In

 

 

Saying its  rates are far below what is needed to be competitive in the market, Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) approved a statewide average rate increase of at least 8.8 percent during its meeting on July 27, 2012 in Miami.

To achieve actuarial soundness, Board members said Citizens would have had to raise rates by more than 40 percent in some areas, but its ability to do so is limited by a State-imposed cap of 10 percent.  Board members say this causes the gap to continue widening between Citizens policies and those offered by private insurers. 

The Board also nixed a plan to establish a $15,000 sub-limit for water losses after several Board members, consumer advocates and public adjusters voiced concern about the limit, saying it was too restrictive.  During a July 16, 2012 public hearing, it was explained that Citizens would likely file a 7.5 percent rate increase for 2013 if the $15,000 water sub-limit was adopted. The approved rate of 8.8 percent was higher as a result of the $15,000 limit being removed.

During discussion on the proposed $15,000 sub-limit, Board member John Wortman suggested increasing the limit to $20,000, but withdrew the proposal because the rates under consideration had been calculated based on the proposed $15,000 sub-limit.  Board member Carol Everhart pointed out that water backups from sewers and drains comprise a “huge percentage” of the company’s claims history.

Insurance umpire Saul Cimbler, president of Florida Insurance Claim Solutions, described the $15,000 sum as “arbitrary” and urged the State-run insurer to consider the effect of its actions, because private insurers would likely follow suit.

He noted that $15,000 might be a huge sum for repairs to an aging home in a modest area, but not for a million-dollar home in an upscale neighborhood.

Another public adjuster at the meeting urged Board members to consider the havoc such a limit would cause if a policyholder incurred a loss well over $15,000.

Although the water loss sub-limit was rejected, the Board directed Citizens Staff to continue researching the matter in relation to Ginnie Mae requirements and report back in 120 days.

The rates must now be approved by the Florida Office of Insurance Regulation (“OIR) before they can be implemented.

The Board also approved actuarially-sound sinkhole rates for 2013, with a phase-in of 50 percent for Pasco, Hernando and Hillsborough Counties in Florida’s Tampa Bay area, a region known as “Sinkhole Alley.”  According to Citizens Staff, Florida’s “insurer of last resort” collected $51 million in sinkhole premiums in 2011 and incurred $528 million in sinkhole losses, thus causing the need for rate increases.

In some areas, the effect of the increases on the current low sinkhole premium would result in a very steep percentage increase, with a relatively small monetary increase.  In other areas, like Pasco and Hernando counties, the percentage increase is lower but the dollar increase is very high, it was said.

“The actuarially-sound rate indication would quadruple the existing rate” in some areas like Tampa Bay, said Board Chairman Carlos Lacasa, explaining the need for the phase-in.  Last year, a 40 percent sinkhole rate increase was implemented.

Chairman Lacasa noted that, if the sinkhole rate was increased equally across all counties, it would be expected that the Board would receive complaints similar to those it typically fields relating to proposals that windstorm rates be distributed equally throughout the state, instead of simply being higher in cost along Florida’s coast.

Mr. Wortman said that sinkhole risk is more focused than wind risk.

It was also noted that provisions in Senate Bill 408 will likely reduce Citizens’ expected incurred sinkhole losses and allocated loss adjustment expenses by 54.7 percent in 2013.  Other changes expected to help are the implementation of a mandatory 10 percent sinkhole deductible, an expansion of sinkhole inspections to 16 counties and, starting in January 2013, the implementation of a sinkhole re-underwriting program for existing business.

Although the Board had discussed implementing actuarially-sound rates for new policies written by Citizens, Board members declined to approve them at the meeting.  Some Board members did not believe they could legally approve such a measure. Others did not believe the additional premium that would be generated was significant enough.

“If rates were uncapped on new policies, it was worth $28 million in 2013, but some Board members didn’t think it was worth it,” Chairman Lacasa said after the meeting.  It was also noted that implementing the uncapped rates on new policies might discourage new business from coming to Citizens, making Citizens less competitive with the private market.  Opinions were mixed as to whether uncapping rates for new business was consistent with Legislative intent.

In his opening statement at the meeting, Citizens’ new President and CEO Barry Gilway touched on an array of issues facing the insurer, noting that the public has little or no understanding of the assessment process, that Citizens is under fire for coverage decisions that have been implemented, as well as its mitigation inspection program.  He characterized sinkhole losses as “staggering,” and said that the company needs to be “much more defined in terms of what we look like in the end and how we get there strategically.”

He said some complaints about Citizens have merit and some don’t.

“We are not presenting our case clearly to the public,” he stated.

He also acknowledged that if the rates approved at the meeting are also approved by the OIR, the gap between Citizens and private insurers will widen.

He said Citizens needs to move forward in a measured way to move rates higher over time to appropriately position the company in the marketplace.

The Board also approved the following changes:

• An increase of the minimum non-hurricane deductible from $1,000 to $2,500 for all occurrence-based policies and calendar-year policies with higher valued limits

• An introduction of options for non-hurricane deductibles of one percent, two percent and five percent

• Elimination of the $1,000 minimum “other wind/hail” deductible to be replaced with a one percent minimum

• The introduction of five percent and 10 percent “other wind/hail” deductible options

• Implementation of language for sinkhole coverage options to allow proportional exclusion if the loss is partially caused by “earth movement”

The Board also approved several procurement items related to software licensing and data storage items before adjourning.

To view the meeting materials, click here.

 

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