Sinkholes swallowing Citizens
TALLAHASSEE, Fla. – Sept. 8, 2010 – Citizens
Property Insurance Corp. asked state regulators Tuesday for a premium
increase, in part because sinkhole costs are swallowing up more and more
of the company’s money.
The company is asking for premium increases averaging 10.9 percent in
2011 for its riskiest homeowner policies. While much of the attention
around property insurance involves hurricane risk, Citizens officials
say that the state-run company took in $19 million in premiums for
sinkhole coverage last year, while paying out $97 million in
sinkhole-related claims.
The Office of Insurance Regulation panel did not take a vote on the rate
request, which would begin to take effect Jan. 1. While the average
rate increase requested would be just under 11 percent, homeowners in
low-risk areas would see their rates rise an average of 9.8 percent.
Even the state’s consumer advocate’s office acknowledges higher rates
may be needed because of sinkhole risk. Either a 10 percent cap on rate
increases needs to be reconsidered, or sinkhole premiums should be
considered separately, said Steve Alexander, an actuary in the Office of
Insurance Consumer Advocate.
Citizens is now taking over the vast majority of sinkhole policies as private insurers try to reduce their risk.
“The rates are insufficient for what is an increasingly larger portion
of claims,” Alexander told a panel of regulators led by Belinda Miller,
Office of Insurance Regulation deputy commissioner for property and
casualty insurance.
“We need to think of a lot more comprehensive approach to sinkhole
insurance as a state,” said Paul Polumbo, senior vice president of
underwriting for Citizens, which now handles 1.2 million residential and
commercial policies in the state’s most hurricane prone regions.
By law, Citizens cannot increase premiums more than 10 percent in a
single year, but the state-run insurance company can ask for additional
money to help rebuild the state’s hurricane catastrophe fund, which is
why the proposed rates are slightly in excess of the 10 percent cap.
Critics say the 10 percent limit hinders Citizens’ ability to raise
rates sufficiently to become actuarially sound. But political
considerations are playing a big role in recent legislative actions to
cushion the blow of premium increases on coastal residents who find
Citizens the only practical choice.
The same dynamic holds true for sinkhole coverage, as the state-run pool
is increasingly becoming the state’s sinkhole insurance provider – an
additional book of business that creates more pressure to raise rates in
excess of 10 percent.
Source: News Service of Florida, Michael Peltier