Citizens Property Insurance Corporation to file large sinkhole rate increases with Florida Office of Insurance Regulation

 

Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) voted today, July 27, 2011, to file 2012 rate indications with the Florida Office of Insurance Regulation (“OIR”), thereby approving rate increases that would raise sinkhole premiums by thousands of dollars per policy in some regions of the State.

To view the agenda and meeting materials, click here.

After hearing a rate analysis by Citizens’ Chief Financial Officer Sharon Binnun, the Board voted to file the 2012 rates with the OIR.  Board members Tom Lynch and Carol Everhart abstained, citing possible conflicts of interest.  Board members Harold Knowles and William Corry were absent.  Citizens’ Actuarial and Underwriting Committee (“Committee”) had voted on July 26, 2011 to recommend that the Board approve the 2012 rate filings.

The OIR is required to establish the rate within 45 days of the filing.  Florida law caps overall rate increases at 10 percent, but the 2011 Florida Legislature lifted the cap for sinkhole premiums as part of sweeping reforms that were enacted.

In her presentation, Ms. Binnun said that Citizens’ earned premiums for sinkholes totaled $32 million in 2010, with losses incurred totaling $245 million, generating more than $200 million in net losses for sinkholes alone. 

“We recognize that our rate need for sinkhole coverage is enormous,” Ms. Binnun stated.  “This fact and its impact on policyholders is not lost on us, but these rates are based on Citizens’ actual sinkhole loss experience.”

She explained that Citizens based the proposed sinkhole rate increases on a five-year loss experience analysis.

“Unlike calculations for hurricane premiums, which rely on projections from computer models, the sinkhole premiums are a direct result of the explosion of sinkhole claims Citizens has been, and continues to receive,” Ms. Binnun said, adding that Citizens anticipates the increases will “stem the tide” of sinkhole losses and ultimately reduce premiums.  Citizens plans to allow policyholders to pay sinkhole premiums using semi-annual or quarterly pay plans, she noted.

Board Member Carlos Lacasa inquired about sinkhole premiums for policyholders in the area north of Tampa and also wondered if insurers generally require sinkhole coverage.

Using Hillsborough County as an example, Ms. Binnun said that region would experience a 2,238.5 percent increase if the proposed 2012 rates are approved, but said the changes vary from region to region.  As an example, the annual sinkhole premium in Hillsborough County would increase from $156 to $3,651 under the proposed rate changes, she said.

It was noted that, in regard to home mortgage requirements, Fannie Mae does not require sinkhole coverage, but Freddie Mac does.

Mr. Lacasa also wanted to know if the proposed sinkhole rates would allow Citizens to achieve actuarial soundness during  the first year of increases, or over time.

Ms. Binnun said the proposed increases would enable Citizens to achieve actuarial soundness in 2012. Citizens is expected to submit  14 separate filings with the OIR.

To calculate potential catastrophic losses, Citizens used the AIR v. 12 model (“AIR”) for the wind portion of the rate for personal residential policies.  The Florida Public Hurricane Loss Model was used to set the minimum benchmark, as required by law. 

For commercial residential and non-residential wind-only policies, Citizens used the AIR model as the benchmark for the wind portion of the rates, which closely correlated with indications generated by its RMS counterpart.

It was noted the statewide average rate change across all lines is 8.8 percent, which includes the Florida Hurricane Catastrophe Fund (“FHCF”) build-up factor, but excludes sinkhole peril.  For personal lines, the change is 8.6 percent when including the FHCF build-up and 7.2 percent without it.  Commercial wind-only coverage would sustain a change of 13.6 percent with the FHCF build-up and 9.9 percent without it.  Commercial non-residential wind-only policies, which are not subject to the FHCF, are listed at 10 percent.  Commercial residential multi-peril rates with the FHCF build-up would result in a 6.6 percent change and a 5.1 percent change without the FHCF.

At the meeting’s conclusion, Board members noted that it would be their last meeting together as a Board and thanked each other for their service.  The meeting was then adjourned.

 

 

Should you have any comments or questions, please contact Colodny Fass.

 

 

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