Insurance regulators panned Citizens’ sinkhole rate request

State Insurance Commissioner Kevin McCarty didn’t think much of the initial massive sinkhole rate increase filed by Citizens Property Insurance this summer, but was careful not to overly criticize Florida’s largest home insurer Tuesday.

McCarty’s Office of Insurance Regulation decided late Monday to approve a 6.2 percent overall statewide increase for Citizens’ 1.3 million policyholders in the state, but the sinkhole portion of their premiums will rise 32.8 percent, a fraction of the original 447 percent sinkhole rate hike sought by Citizens.

“We found the overall rate increases by territory weren’t justified,” McCarty said, adding that Citizens’ arguments were “unpersuasive” and there were “anomalies” in their rate request.

Citizens later amended its request just before an OIR hearing, but McCarty said the insurer based its original request on recent trends in which sinkhole claims have skyrocketed, and didn’t take into account SB 408 passed by lawmakers this past session and signed into law by Gov. Rick Scott with the aim of reducing fraud and frivolous claims. In 2010, Citizens took in $32 million in sinkhole premiums and paid out $245 million in claims.

“What they did was take the historical loss data and then trended it out,” McCarty said during a conference call Tuesday.

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After Citizens announced its initial rate hike request this summer, even lawmakers who voted for SB 408 — which allowed the state-backed insurer to break the 10 percent cap on annual increases for sinkhole premiums — came out against the increase. Citizens’ Board of Governors voted to amend the request last week to phase in the increases over time, seeking a 50 percent sinkhole premium increase this year, but OIR could only justify a 32.8 percent increase.

“We believe this increase, which is most of the phase-in requested, will provide additional premium while allowing time form the SB 408 provisions to have an impact on sinkhole losses,” said Christine Ashburn, director of legislative and external affairs for Citizens.

Sen. Mike Fasano, R-New Port Richey, and consumer advocates who fought SB 408 praised the decision Monday, and credited the pressure they brought on regulators — through protests and calling for localized hearings in the Tampa area where the increases could have meant as much as $5,000 increases for some policyholders — as winning the day.

“Absolutely it made the difference,” said Sean Shaw, founder of the insurance consumer advocacy group Policyholders of Florida.

In a press conference Tuesday, Scott said that Citizens’ rates should be fair, but need to come more in line with the private market so Florida taxpayers aren’t exposed in the event of a catastrophic hurricane.

“My goal is I want to make sure that Citizens is financially viable,” Scott said, adding that prices should be fair “but (customers) want to have a product, a company they can rely on.”

In light of the sinkhole rate saga, some legislators signaled their desire to tweak SB 408 during the next legislative session to prevent massive hikes. Fasano stated his intent to reinstate the 10 percent cap on sinkhole rate increases for Citizens, but many of his fellow Republicans would like to see the state-backed insurer’s prices and business practices shifted to bring it more in line with the private sector.

“We’ve created a monster (Citizens) that’s sucking the oxygen out of the private sector and we need to fix the monster,” said Rep. Bill Hager, R-Boca Raton.

McCarty said it was too soon to tell whether the provisions in SB 408 aimed at reducing frivolous claims and reducing fraud in sinkhole claims were having the intended effect.