Florida Insurer Phasing in Sinkhole Increases

Representatives of Citizens Property Insurance Corporation defended the large increases during a Sept. 13 public hearing, saying claims and the cost of adjusting sinkhole losses are skyrocketing.

Florida legislators who thought they had settled the sinkhole insurance crisis earlier this year will find the issue before them again, several state senators said during a Sept. 13 public hearing in Tampa about Citizens Property Insurance Corporation's proposed rate increases. More than 200 Floridians showed up to protest proposed increases that range from 0 percent in Lake County to 2,226.1 percent in Orange County, according to the Florida Office of Insurance Regulation, which conducted the hearing.

Two state senators who voted against SB 408, the 2011 insurance reform bill that has freed Citizens to propose such large increases, and two senators who voted for it agreed the Florida Legislature will consider the issue again next year, the Miami Herald reported.

On Sept. 12, the insurer's Board of Governors voted in Tallahassee to phase in the rate increase. Citizens said as a result, its sinkhole rate increases for 2012 will be limited to 50 percent both statewide and by territory.

Sharon Binnun, chief financial officer of Citizens, said at the rate hearing that both sinkhole claims and the company's cost of adjusting sinkhole losses are skyrocketing. There were 1,400 claims reported for accident year 2011 during the six months that ended June 30, 2011, twice as many as the same period one year before, she said.

"Technical actuarial analysis is not necessary to understand some basic facts: In 2010, Citizens earned $32 million in sinkhole premium and incurred $245 million in sinkhole losses. Left unchecked, the projected sinkhole losses for 2012 would be $559 million," Binnun said in her prepared statement. "However, significant sinkhole claims reform legislation was passed in the 2011 legislative session. Certain provisions of SB408, such as creation of a statutory definition of structural damage; requirement that insureds repair sinkhole damage; implementation of a 2 year sinkhole claims filing deadline; and the limitation on sinkhole coverage to the principal structure] allowed Citizens to reduce its proposed 2012 sinkhole rates by approximately 60% from what would have been indicated absent SB408. Had Senate Bill 408 not been considered, policyholder premium would have been more than double our current rate indications. As the expert testimony will demonstrate, the impact of Senate Bill 408 was appropriately considered in Citizens' rate filing. The filing shows average statewide rate indications over 400% which would have been over 1000% without SB 408.

"We realize that even with the substantial reduction in projected sinkhole losses as a result of the enactment of SB 408, arriving at actuarially sound rates for sinkhole coverage still requires enormous premium increases in some territories with adverse sinkhole claims experience. In recognition of the potential impact of these premium increases, Citizens' Board of Governors met yesterday and authorized staff to implement a transition plan for sinkhole rates, once approved, using the following methodology: a phase in for the peril of sinkhole rates resulting in an overall territorial premium increase of no more than 50% for the first year, with new rate indications to be reviewed annually thereafter, at which time the true impact of SB408 should become more apparent."

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