Citizens Property Insurance rate hearing fails to attract many policyholders

08/21/13 Janelle Irwin
WMNF Drive-Time News Wednesday | Listen to this entire show:


Citizens Property Insurance is proposing a 7.5% overall rate increase for policyholders in Florida, including increases for sinkhole coverage. The state-backed insurance company appeared before the Office of Insurance Regulation Tuesday night in Tampa to plead its case. Barry Gilway, the head of Citizens, said the agency is working hard to keep rates affordable.

“We also have an obligation to all Florida policyholders, whether they are Citizens policyholders or not, who will be called upon to pay assessments in the event that our financial resources are exhausted.”

Gilway said right now Citizens has enough money to cover claims that could result from a major hurricane.

“Using traditional reinsurance and the cap bond market, we have placed an estimated $1.85 billion and we have taken that $1.85 billion off the shoulders of all Floridians prior to this hurricane season. This risk transfer greatly enhances our ability to respond to claims in the event of a major hurricane.”

But he urged consumers to understand that even one catastrophic storm could deplete those funds. The rate increases would also affect people who buy optional sinkhole coverage. In 2011, Governor [Rick Scott]( signed a law that narrowed the definition of sinkhole damage. Now policyholders are forced to pay half of the cost to re-evaluate a claim that has been denied -- that amounts to about $2500. As a result, of the more than 1,000 sinkhole claims in Florida last year, only 18 showed sinkhole activity and only 13 of those had structural sinkhole damage.

“And this is excellent news considering that between 2008 and 2012, Citizens collected $191 million in sinkhole premium, but paid out $1.2 billion in sinkhole claims and related expenses. That’s obviously a critical number to keep in mind. That means, basically that we paid out 6 times what we collected in premium.”

The idea was to cut back on fraudulent claims, which Citizens claims is working. But not everyone agrees with the new law. Former State Senator Mike Fasano argued there are too many backdoor rate hikes, including the proposed rate hike in Pasco that would charge sinkhole policy holders an average of $336 more each year. That’s troubling to him because the deductible on sinkhole damage is based not on the value of repairing damage, but on the home’s total replacement value.

“The replacement value on people’s homes have gone up significantly and you don’t have to approve it. And the commissioner and the office of insurance regulation does not have to approve that. So what does Citizens do? They take a home in Holiday and New Port Richey and North Pinellas, in Hudson, Bayonet Point and Land O’ Lakes and they take a home and they tell that homeowner the replacement value is $150, $200, $250,000 and they’re able to raise the rates based on that replacement value. Now those homeowners could only wish, could only dream that they could get the value that Citizen is suggesting when they sell that home.”

Fasano also criticized Citizens’ policy to not cover sinkhole damage on patios and driveways. The sinkhole rate hikes will be limited in the three counties where most of the claims originate – Pasco, Hernando and Hillsborough. Paul Kutter, an actuary for Citizens Property Insurance, said those limits are intended to reduce the burden on homeowners.

“As allowed under Florida statute, Citizens’ board of governors has recommended that the 2014 sinkhole rates be phased in for policyholders in Pasco, Hernando and Hillsborough counties. The board’s recommendation is increases of 20% for Pasco and Hernando counties and 50% in Hillsborough County. Citizens is proposing this phase in to reduce further financial hardship on sinkhole policies.”

State Representative Dwight Dudley, a Democrat, joined opposition to new rate hikes. He pointed to a cut in incentives for homeowners who make improvements to their homes that mitigate storm impacts like hurricane-graded windows and newer roofs.

“Those credits are gone. That $1200 I saved that one year I was very happy about. I was not very happy when it was taken back and I know that I am not alone in this, that there are millions of Floridians in that same boat.”

Another goal for Citizens is to push policyholders away from the government run entity and into private policies. CEO Gilway said restructuring policies is doing just that.

“Depopulation efforts in the last year have actually resulted in over 400,000 offers of coverage to Citizens policyholders with close to 300,000 of those policyholders electing to move to the private marketplace.”

Only four members of the public spoke during the hearing. Two were from Key West where rates creep into the tens of thousands. The other two live in the Tampa Bay area. One of them was Mark Klutho who is known for blatantly insulting policy makers during public hearings. He called insurance regulators and leadership at Citizens, a bunch of idiots.

“This is nothing but racketeering. This insurance is bloodletting, leachers.”

The Office of Insurance Regulation is expected to decide on the proposed rate hikes within the coming weeks.

comments powered by Disqus