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Proposed sinkhole insurance rates likely will force people to drop coverage

TALLAHASSEE — The state-run property insurer took a step toward imposing massive rate hikes for sinkhole insurance Tuesday, tentatively approving new premiums that would force many policy holders to either pay thousands of dollars more next year or drop coverage altogether.

The rate hikes — more than 2,000 percent in parts of Tampa Bay and an average of 429 percent statewide — will be considered by the full Citizens Property Insurance board today before heading to the Florida Office of Insurance Regulation for final approval.

Citizens actuaries say the new rates, which could cost some customers an additional $4,000 a year, are necessary because current premiums don't cover payouts for sinkhole claims.

In Tampa the average premium for a sinkhole policy would increase from $156 to $3,651. In coastal Pasco County, rates would rise from $1,270 to $3,598. In coastal Hernando County, premiums would soar from $1,356 to $5,734.

That's on top of normal property insurance rate changes.

The rate increases stunned Kim Romano, a Carrollwood homeowner who works as a receptionist at a charter school.

Romano recently received a nonrenewal notice from her property insurance company, leaving Citizens as her only insurance option.

Under the plan being considered by Citizens, sinkhole coverage alone could cost Romano more than $3,500. The company's current average rate in that part of Hillsborough County is only $260.

"This is just absolutely insane," she said. "Is my salary going up? No, it's not. I just had to take a huge cut. I'm a frustrated homeowner right now."

Florida's former insurance consumer advocate, Sean Shaw, called the Citizens plan a "damning proposition" and challenged his replacement to fight the increases.

"A measure like this will prove devastating to homeowners, potentially putting everyday working Florida families out of their homes and onto the street," Shaw wrote to Robin Smith Westcott, recently named the state's consumer advocate by Chief Financial Officer Jeff Atwater.

Westcott said Tuesday she is reviewing the rate hikes.

"I'm not going to take any position yet on whether we will recommend a lower rate. I want to see the components of the rate filing," she said.

"We understand that 2,000 percent rate increases is unmanageable for a lot of homeowners, especially on top of other premiums they're paying," Westcott said. "Many of these folks, they're in a situation where their mortgage requires them to carry sinkhole coverage. And that makes home ownership unaffordable for some people."

Florida law caps Citizens overall annual rate increases at 10 percent. But the Legislature lifted the cap on sinkhole premiums as part of major insurance reforms passed during the 2011 lawmaking session.

Debate over sinkhole insurance was highly contentious, with insurance companies, including Citizens, complaining that fraudulent and frivolous claims were draining their coffers.

"We just want to collect the accurate rate and we want people to know how bad the problem is. People should only buy sinkhole insurance when they really need it and only file real claims," said Citizens spokeswoman Christine Ashburn.

The new rates are based on actual sinkhole claim payouts over the last five years, she said.

"This is what the data shows we need to do," she said. "We are not doing this to try to make people not buy it."

Jeff Grady, president and CEO of the Florida Association of Insurance Agents, said that's exactly what private insurers want.

The insurance industry had lobbied lawmakers this year to free them from the requirement to offer comprehensive sinkhole insurance altogether.

"That was not in the cards. So the next best thing is charge a rate for what it costs," Grady said. "The sinkhole issue is going to fix itself through the rates. People aren't going to buy it."

Janet Zink can be reached at jzink@sptimes.com or (850) 224-7263.

Hot spot for sinkholes

Sinkhole claims to insurance from 2006-2010. Percent is percent of statewide total, which was 24,671. The Tampa Bay area had 72 percent of the total claims in the state.

Hernando6,03624.5%
Pasco5,93224.0%
Hillsborough4,45018.0%
Pinellas1,4665.9%

Source: Florida Office of Insurance Regulation

Proposed sinkhole insurance rates likely will force people to drop coverage 07/26/11 [Last modified: Tuesday, July 26, 2011 10:10pm]
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