TALLAHASSEE — The state-run property insurer is proposing to increase sinkhole insurance premiums by more than 2,000 percent in some parts of the Tampa Bay area, and an average of more than 400 percent across the state.
The rate hike — which could cost some customers an additional $4,000 per year — is necessary because current premiums don't cover payouts for sinkhole claims, according to Citizens Property Insurance actuaries.
The proposed increase, released Monday, comes after the Legislature lifted a 10 percent rate hike cap on sinkhole premiums as part of major insurance reforms passed during the 2011 lawmaking session.
Rates across the state would increase an average of 429 percent, Citizens officials said.
In Tampa, rates would jump 2,239 percent. For the rest of Hillsborough County, Citizens wants a 1,304 percent increase. Also hit hard: coastal Pinellas County, where rates for sinkhole policies would rise 2,046 percent.
If approved, that means in Tampa the average premium for a sinkhole policy would increase from $156 to $3,651. In coastal Pasco County, rates would increase 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.
More than 94,400 property owners in Hillsborough, Pinellas, Pasco and Hernando counties have sinkhole insurance through Citizens.
A Citizens subcommittee is set to consider the rates today, and the full board will consider the proposal Wednesday. The rates will need approval by the Florida Office of Insurance Regulation before they go into effect.
Although Florida law caps Citizens overall annual rate increases at 10 percent, lawmakers this spring passed a controversial insurance reform bill —SB 408 — that gave Citizens authority to increase sinkhole premiums as much as necessary to cover losses.
"This is the reason why I voted against Senate Bill 408," said Sen. Mike Fasano, R-New Port Richey, who fought against the bill all session. "Those who pushed Senate Bill 408 down our throats said it would actually help the markets. It's not helping the market. It's not giving people the opportunity to choose.
"They have one choice. Either pay the huge increases or have no insurance at all."
But Christine Ashburn, a spokeswoman for Citizens, said the increases are necessary to cover losses incurred by sinkhole claims.
"We're pushing $1 billion in sinkhole losses over the last nine years. And when we build out rates going forward we look at that actual data," she said. "The numbers are what the numbers are. This is what our actuaries believe are appropriate for the exposure we have on sinkholes."
In 2010, Citizens collected $32 million in homeowner sinkhole policy premiums but had loss-related expenses of $245 million, according to Scott Wallace, president and CEO of Citizens.
Sinkhole insurance was hugely controversial in the 2011 legislative session, with insurers arguing that fraudulent and frivolous claims are draining their coffers. They say policyholders file claims but use the money for items other than repairs, or file claims for hairline cracks.
Lawmakers considered freeing all insurers from having to offer comprehensive sinkhole coverage altogether. They suggested requiring the coverage only in the most extreme cases, if a hole opens in the ground and swallows a structure.
That idea was rejected amid concerns that some banks require property owners to have comprehensive coverage and warnings that if given the option, private insurers wouldn't offer it at all.
The legislation, though, allows Citizens to significantly boost the cost of sinkhole premiums. The huge numbers caught even supporters of the bill off-guard.
"I'm surprised that it's that much," said Sen. Alan Hays, R-Umatilla, who co-sponsored SB 408. "But if that's what the risks are, then that's what they need to be."
Hays has pressed for allowing Citizens to increase all its rates beyond the 10 percent annual cap.
"The bleeding has to stop," he said. "I'm waiting with great anticipation when all their premiums are actuarially correct. Right now they're politically correct and actuarially corrupt."
Sen. Mike Bennett, R-Bradenton, who supported SB 408, said the massive increases seemed "unbelievably high," but perhaps necessary.
"You can't force a company to sell the product and have someone else set the price," he said. "The consumer has the right to reject it and go shopping for insurance someplace else."
But Rep. John Wood, R-Winter Haven, who sponsored the bill in the House, said the big boost didn't bother him much.
"If Citizens actuaries are saying that kind of rate increase is necessary, that's just showing the scope of the problem," he said. "Many people are just not going to be able to afford sinkhole coverage."
And that's all right, he said.
"I personally don't think sinkhole coverage is really necessary," he said. "The problem with sinkhole coverage was not in the actual physical experience with sinkholes, it was caused by our statute that was causing a great deal of fraudulent claims. People are looking at their insurance policies as an ATM card."
Janet Zink can be reached at [email protected] or (850) 224-7263.