Editorial: State gets reasonable on sinkhole premiums

In a consumer friendly action, Florida’s insurance commissioner wisely slashed the proposed premium increases for sinkhole coverage that Citizens Property Insurance Corp. intended to charge home and business owners. While rates will rise a maximum of 32.8 percent instead of the state-run insurer’s proposed statewide average of 440 percent, now most current Citizens homeowner clients will only pay 6.2 percent more.

Expect that to increase in the coming years as Citizens moves rates into a more actuarially sound position. Even without a hurricane strike over the past five years, Florida’s insurance market remains fragile — especially Citizens.

This year, the Legislature addressed one of the problems plaguing the insurer — the soaring number of sinkhole claims — with a measure that authorized higher premiums for the coverage and tightened restrictions on claims to stem fraud. The number of claims almost doubled from last year, adding to a disturbing upward trend that had to be addressed. Last year alone, Citizens paid out some $245 million on claims but only collected $32 million in premiums.

Fortunately, the sinkhole risks in Manatee and Sarasota counties are minimal, and rate increases will reflect that. But our neighbors to the north — in Hillsborough, Pasco and Hernando counties — will get socked with big bills.

Under an earlier premium proposal, Tampa property owners would have paid a 2,239 percent increase, from a current average of $156 to $3,651 — a completely untenable plan that had the frightening potential of forcing business closures and home foreclosures, further harming the wobbly economy and real estate market.

But Insurance Commissioner Kevin McCarty determined Citizens did not provide credible data to support huge rate increases, opting for gradual annual increases that will still burden property owners.

Property insurance rates are destined to increase at Citizens, which now holds more than 1.4 million policies. The insurer still does not charge enough to cover potential losses, even after the Legislature lifted a two-year rate freeze in 2009 and capped annual increases at 10 percent for non-sinkhole property insurance. This year’s legislation ended any rate limit on sinkhole coverage.

The state is on the right path by slowing down Citizen rate hikes, but that leaves the insurer vulnerable in the event of massive damage from a hurricane. If a major catastrophe strikes Florida and damage exceeds Citizens’ claims-paying reserves, which now total some $4.5 billion, the state’s taxpayers would be exposed to large liabilities and all insurance policyholders could be hit with surcharges.

This worrisome situation demands attention, and legislators are poised to continue trying to create a competitive private market that will ease the pressure on Citizens. But one idea that surfaced over the summer shows a lack of concern for consumers.

Gov. Rick Scott embraced the suggestion that Citizens be privatized, going so far as to say that action would make property insurance more affordable. If Citizens is not charging actuarially sound rates now, surely a private company would have to increase premiums into that arena — at a far quicker pace than allowed now.

With a private insurance market that relies on questionable hurricane models used to set rates and an expensive reinsurance market that operates without regulation, Citizens is a welcome barrier to unaffordable policies. But that still leaves the state with a difficult dilemma: How to stabilize a market beset by competing interests — low consumer rates versus sound business practices.

In this round of decisions, the insurance commissioner came up with a more reasonable middle ground.

Find this article here: http://www.bradenton.com/2011/09/22/3513971/state-gets-reasonable-on-sinkhole.html#ixzz1YhA63jqB