Florida’s Citizens Makes Case for Homeowners, Sinkhole Rate Increases

Florida’s state-backed property insurer is seeking a statewide average 6.6 percent increase in homeowners’ rates and a 24.8 percent increase in sinkhole rates while citing reduced losses and an improved financial position.

Citizens Property Insurance Corp., which insurers 1.2 million policyholders, said its proposed homeowners’ rate increase would raise $96 million in additional premiums, while the rate hike for the optional sinkhole coverage would bring in another $15 million.

The rate bids come as Citizens is reporting its strongest financial position in some time, thanks in great measure to eight years without major hurricane losses. The insurer now has $6.3 billion in surplus and has transferred an estimated $1.8 billion in exposure to reinsurers and the capital markets.

Citizens President Barry Gilway said the insurer’s financial position, along with its depopulation program that could see private insurers taking out as many as 445,000 policies, has reduced the assessment risk on all state policyholders by 47 percent to a projected $3.8 billion.

Gilway said that although the projected homeowners’ rate increase adheres to the statutory glide path that prevents increases greater than 10 percent annually, the insurer’s rates are starting to approach actuarial sound levels. Since 2011, he said the insurers’ actuarial rate need has dropped from 56 percent to a projected 18.3 percent in 2014.

“The filing before you shows we are clearly making progress on our overall rate need,” said Gilway at a public hearing. “Simply put, the statutory glide path is working.”

While Citizens continues to make progress on raising homeowners’ rates, there remains a significant rate need for sinkhole coverage that is not covered by the statutory glide path.

Citizens’ Actuary Paul Kutter said the good news is that the insurer is projecting that its sinkhole losses will decrease by an estimated 52 percent based on reforms enacted by lawmakers in 2011. Among other things, the reforms placed a two-year statute of limitations on sinkhole claims, restricted the definition of a sinkhole loss and required that sinkhole damage must be repaired in accordance with a professional engineer’s recommendations.

However, Kutter said that Citizens still has a significant rate need when it comes to the optional sinkhole coverage.

“Based on data that was available when preparing these filings, our indicated rate need for optional sinkhole coverage is 207 percent even after application of the 52 percent reduction in costs,” said Kutter.

The statewide average sinkhole rate increase requested is 24.8 percent but the insurer is proposing to limit the effect in the state’s most sinkhole prone areas north of Tampa. In Pasco and Hernando counties, the rate increases would be capped at 20 percent of the statewide average and in Hillsborough County the increase would be capped at 50 percent.

Those caps, however, could still translate into significant premium increases for homeowners. For example, in Pasco County the current average sinkhole premium is $1,829. If the rate increase is approved as filed, that would increase to $2,195, a jump of $366. Homeowners in Hernando County would see a $338 increase and those in Hillsborough County, an increase of $191.

In all other counties, Citizens is seeking actuarial indicated sinkhole rates, which translates into increases on policyholders ranging from $0 to $76. The average increase would be seven dollars.

Even as Citizens’ officials presented a positive picture of the insurer’s current financial condition, Gilway cautioned that given Florida’s high risk of hurricanes that could quickly change.

“While we have become financially stronger,” said Gilway. “Citizens remains only a bad storm season away from breaking the bank and being forced to assess all Florida policyholders.”