Editorial: Recession reason to lower rate hikes
Sep 16, 2011
The following article was published in the Tampa Tribune on September 16, 2011:
Editorial: Recession reason to lower rate hikes
In the last five years, the number of sinkhole claims in Florida has risen dramatically, and property owners in sinkhole-prone areas have seen a corresponding increase in premiums. And although claims have risen around the state, most have come from “sinkhole alley” — that is, Hernando, Hillsborough and Pasco counties.
Both the state and policyholders are feeling the pinch. Citizens Property Insurance Corp., the state-run insurer of last resort, has requested a rate increase of 430 percent on average across Florida for sinkhole coverage, but the company would increase some coastal homeowners’ rates by 2,300 percent or more.
These rate requests have understandably alarmed property owners, the lawmakers who passed legislation last year to allow Citizens the rate increases it needs to pay claims, and regulators, who seem to understand most homeowners can’t afford the hit.
Citizens has wisely backed down from jacking rates up right away and instead proposes phasing in the rate hikes over an as-yet-to-be-determined number of years. The company wants a 50 percent increase in the first year. The Florida Office of Insurance Regulation will announce Monday whether it will approve the proposal.
But even a 50 percent increase in insurance during these hard times is asking a lot. Many homeowners simply can’t afford it. Some are out of work, others are retired, and the housing market is way off. If a homeowner has to move out, who would buy the house?
What is more likely to happen is that homeowners will forego the optional sinkhole coverage, which could lead to catastrophe for them if a sinkhole forms.
Nevertheless, something has to be done. Citizens can’t fiscally keep up with the claims being filed. Last year the company reported $245 million in losses while collecting just $32 million in premiums. All told, since 2006, Citizens has had nearly $500 million in losses from some 6,500 claims. In the last nine years, losses approach $1 billion.
The difficulty is finding the balance that protects consumers who truly have a sinkhole while also eliminating the abuses in the system that are driving up insurance costs for everyone.
We don’t envy Citizens’ leaders, who can’t relish seeking such out-of-proportion rate increases. They know very well the kind of opposition they will receive from consumers. But they are responding to hard numbers.
However, only the richest Floridians can afford a 2,300 percent increase. Coastal residents should expect to pay more for their coverage, but that kind of at-once increase would be a cruel shock.
State Sen. Mike Fasano has accused Citizens of making sinkhole insurance unaffordable so customers will drop coverage altogether. He has called for a special session if the increase is approved and has endorsed a cap of 10 percent.
He may be right, but at that rate it would take 45 years, if we can believe the numbers, for Citizens to become financially sound for purposes of sinkhole protection.
Higher premiums are coming. We live in a state where sinkholes are common. Citizens cannot continue paying sinkhole claims as it has, but it should not punish property owners with massive and sudden rate increases that would knock the bottom out of homeowners’ already pinched budgets and force most of them to drop coverage.