Florida Insurance Commissioner Kevin McCarty has brought some pragmatism to the firestorm over rate increases for sinkhole coverage provided by Citizens Property Insurance Corp. The state insurance regulator approved an average statewide increase of 32.8 percent, which still will pinch many homeowners but is far from the absurd 447 percent increase Citizens initially sought. His order also raises more questions about the competency of the state-run insurer, which appears to have pulled its estimates out of thin air.
Trace the numbers to see how this controversy over sinkhole rates evolved. In inland Pasco County, Citizens originally wanted to increase sinkhole premiums by 221 percent, from $1,472 to $4,724. Then it decided to limit the increase to 50 percent for the first year, which would have raised premiums to $2,208. Under McCarty's order, the premiums will increase by 10.4 percent, to $1,625. Bottom line: The average increase in inland Pasco will be $153 instead of $3,252 originally sought by Citizens.
This all adds up to creating unnecessary panic among thousands of homeowners already struggling to hold onto their homes in a faltering economy with high unemployment, declining property values and record foreclosures. The responsibility rests with state legislators who sided with Citizens over consumers and with Citizens, which calculated rate increases with little or no regard to changes in state law or economic reality.
McCarty makes a couple of excellent points in his order. He concluded that Citizens "provided no credible evidence'' that it took into consideration changes to state law regarding sinkhole coverage that should reduce claims. Those changes require tighter definitions for structural damage and requirements that damage awards be used to make repairs. McCarty rejected Citizens' vague assumptions that sinkhole losses would track claims for water and fire damages, and he ordered Citizens to hire an independent firm to study sinkhole claims and the impact of the new law. The Citizens Board of Governors should have asked more questions before seeking such an indefensible rate increase.
To be sure, something had to change to stem the avalanche of sinkhole claims, particularly in Pasco and Hernando counties. Citizens paid out about $250 million in sinkhole claims last year but collected just $32 million in sinkhole premiums. But as McCarty points out, the insurer cannot make up for past losses with new rates.
This sorry episode demonstrates that despite all of the spreadsheets and historical data, setting insurance rates remains awfully political. The Legislature triggered this controversy by lifting the general 10 percent cap on Citizens' rate increases for sinkhole coverage. Many legislators wanted insurers to be able to just stop offering coverage for sinkholes. But they still opened the door for Citizens to propose rates so high that many homeowners could not afford it.
That triggered a strong political reaction, increasing pressure on McCarty and even state legislators who badly miscalculated. Credit state Sen. Mike Fasano, R-New Port Richey, with rallying his angry constituents who could not bear another economic hardship. And give McCarty credit for scheduling the public hearing in Tampa, listening to real-world concerns and applying some common sense that should enable many homeowners to sleep a bit easier. That's more than can be said for many legislators who side with insurers over consumers — and the out-of-touch state-run insurer.