PORT RICHEY — Proposed rate increases for Citizens Property Insurance could pack a double-whammy for many North Suncoast homeowners because of pricey sinkhole coverage.
Legislation moving quickly through the Legislature would allow Citizens to raise rates by up to 25 percent a year, instead of the current 10 percent. And sinkhole coverage would be removed from that cap altogether, so that premium could increase as much as regulators allow.
That means a Hernando homeowner with a Citizens policy with full sinkhole coverage could see a hefty increase in base rates — in addition to a jump in the sinkhole premium.
"They could expect to pay more for sinkhole coverage than they do now," said Monte Stevens, a lobbyist for the Office of Insurance Regulation. "Whether that increase is substantial or miniscule, I think it's somewhere in the middle."
By increasing rates, the bills (HB 1243/SB 1714) seek to push more policyholders to the private market and give government-run Citizens enough cash to pay claims from a catastrophic storm.
Consumer groups and some lawmakers have warned that the rate hikes, in conjunction with relaxing other insurance regulations, could harm ratepayers.
"Economically, it would be a disaster if these bills passed," said Sen. Mike Fasano, R-New Port Richey. "Especially those along the U.S. 19 corridor. They can barely afford these premiums now."
Fasano said he's mostly concerned with a proposal to allow private insurers to raise rates by 30 percent without oversight from state regulators. He's also worried about removing a requirement that companies must offer sinkhole coverage. "If they don't have to offer sinkhole coverage, they're not going to offer it," he said.
It's unclear exactly how much sinkhole policies will increase. Lawmakers are considering several other changes to sinkhole coverage, including making it less generous and requiring payments to be used to fix sinkhole damage. That could lead to fewer payouts and more moderate rate increases.
North Suncoast residents already pay much more for sinkhole coverage than other Floridians. The average sinkhole premium is $944 in Pasco and $775 in Hernando. Hillsborough's average is $98, while homeowners in the rest of the state pay an average of $22.
Even so, Citizens officials and private insurers say an increase in sinkhole claims, combined with a drop in the number of policies, puts the market at risk. For example, in 2009, Citizens took in $8.3 million from Pasco policyholders for sinkhole coverage, but it spent $24.9 million settling sinkhole claims. In Hernando that year, Citizens took in $5.9 million in sinkhole premiums, but spent $40.5 million.
The company calculates that average sinkhole premiums in Pasco would have to be $2,800 to cover the current level of payouts. The comparable Hernando figure is $5,300. Officials emphasize those are not proposed rates — just an illustration of the shortfall from the current premiums.
Private insurers argue many sinkhole claims are unscrupulous, such as people who file a claim for a small crack in their driveway and use the settlement to help pay off a mortgage or car payment. Sam Miller, vice president of the Florida Insurance Council, said part of the problem is public adjusters and lawyers who file claims on behalf of homeowners and get a commission when a claim is paid.
"We are trying to eliminate the fraud and the abuse and the gaming of the system," Miller said. "If you can do that, the insurance for real sinkhole coverage will become affordable."
But David Beasley, president of the Florida Association of Public Insurance Adjusters, said most sinkhole claims are legitimate. He cited thousands of new homes built in sinkhole-prone areas over the past decade, as well as a greater reliance on aquifers and wells that leave the terrain more susceptible to collapse.
He called many of the sinkhole insurance provisions "overkill" and said "the simplest thing to do would be to determine a fair description or definition of what qualifies as sinkhole damage." That could help curb losses while still protecting consumers, he said.
One proposal in the rate-increase bill says Citizens could only pay for sinkhole damage to a primary home. That would exclude sheds, mother-in-law apartments, driveways and decks or patios.
A separate bill (SB 408) also would require that insurance payments to actually be spent on repairs. Fasano supports that change and said it could go a long way to eliminating fraud in the system.
"There's no incentive (for fraud)," he said. "That money will be used for one purpose, and that it is to fix a sinkhole."
Lee Logan can be reached at email@example.com or (727) 869-6236.