Sinkholes swallowing Citizens

Real Estate Agent with RE/MAX Property Centre

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

Comments (0)

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?