Angry policyholders blast Citizens Property Insurance officials at public hearing over proposed rate hike; insurance regulators grill Citizens on rate methodology

Sep 15, 2011


At a September 13, 2011 public hearing in Tampa packed with angry policyholders, Florida insurance regulators grilled the staff of Citizens Property Insurance Corporation (“Citizens”) about a rate hike that would raise premiums in some regions by as much as 4,000 percent.  The Florida Office of Insurance Regulation (“OIR”) has a Monday, September 19, 2011 deadline to approve or deny Citizens’ proposed rate increases.

During the four-hour hearing at the Tampa Convention Center, dozens of residents from the Tampa Bay area pleaded with State insurance regulators to reject the proposed rate increase, claiming that the increased premiums in Pasco, Hernando and Hillsborough counties—the area known as “Sinkhole Alley”—would price them out of their homes.

 “If this rate increase goes into effect, we will have to default on our mortgage,” said one Tampa Bay retiree, who told regulators that she and her husband had both lost their jobs, while their sinkhole coverage doubled.  “We are being held captive not only by our mortgage, but by Citizens.  It will have a devastating effect on most, if not all counties.”

Citizens’ Chief Financial Officer Sharon Binnun told regulators the rate hike was necessary to ensure that Citizens is actuarially sound.  She said the frequency of sinkhole claims has more than doubled in the past 12 months, with 1,400 claims being reported as of June 30, 2011, compared with 700 claims reported as of June 30, 2010.

Ms. Binnun said Citizens earned $32 million in sinkhole premium in 2010, but incurred $245 million in sinkhole losses.  Projected losses for sinkhole claims for 2012 are $559 million.

She said certain provisions of the recently-enacted SB 408 will help reduce Citizens’ sinkhole losses by 60 percent, a claim that drew fire from regulators who wanted more data as proof.

“We don’t see any concrete analysis of the savings of SB 408,” said Florida Insurance Commissioner Kevin McCarty.

Ms. Binnun explained that the following provisions of SB 408 will enable Citizens to meet its goal of reducing sinkhole losses by 60 percent.

  •     The creation of a statutory definition of “structural damage”
  •     A requirement that policyholders must use claims payments to repair sinkhole damage
  •     Implementation of a two-year sinkhole claims filing deadline    
  •     Limitation on sinkhole coverage to the principal structure

Further, Ms. Binnun noted that, had these provisions of SB 408 and their anticipated effect of reducing sinkhole losses not been taken into consideration, the requested increase in sinkhole premiums would have been more than twice what was filed.

She pointed out that, at its meeting the day before, Citizens’ Board of Governors (“Board”) unanimously agreed to phase in the sinkhole rate increases over several years due to their anticipated financial impact, particularly in “Sinkhole Alley.”

Under the phase-in plan approved by the Board, the overall average statewide and territorial premium increase for sinkhole coverage would be 50 percent for the first year, with new indications to be reviewed annually thereafter.  If the sinkhole rates approved by the OIR differ greatly from those filed by Citizens, it was recommended that Citizens’ staff review the implementation schedule.

The Board’s decision to phase in rate increases over several years was possible because of a provision in Section 627.0629 (5), F.S., which states that an insurer has the latitude to implement an approved rate increase over several years.

Citizens is still seeking the full rate increase in its original filing with OIR.  It would simply be phased-in over time.

Florida Insurance Commissioner Kevin McCarty and OIR actuary Robert Lee wondered why Citizens provided nothing to explain how the 60 percent figure was determined.  When they questioned the appropriateness of Citizens using a geologist to evaluate sinkhole claims instead of a structural engineer, a Citizens representative told them it had been done that way for years.  He stated that structural engineers were used if something needed to be repaired.

When Commissioner McCarty asked if claims could be sorted by whether they had been evaluated by a geologist or a structural engineer, the Citizens representative said that information was unavailable.

“I was unable to obtain it,” he said.

Florida Insurance Consumer Advocate Robin Westcott wondered how a rate hike could be proposed if all the necessary information to determine the effect of SB 408 on sinkhole losses was not available.

“I would submit that you can’t establish what the rate will be for the effect of SB 408 to structural damage.  The fact that they failed to capture information that was valid and relative and can’t be given to this Office to support that filing does not give them the right to give an indication based on a guess,” Ms. Westcott said.

Senator Mike Fasano, a Republican from New Port Richey who voted against SB 408, told regulators the potential devastation of the lives of many is “just around the corner,” should the rate increase be approved.  He called the rate hike an “economic disaster waiting to happen.”  His comments were met with thundering applause.

“It boggles the mind that Citizens would think the people in communities most affected by the rate increases would be able to afford those outrageous rate increases,” Senator Fasano said. “Citizens wants to make this coverage so unaffordable that policyholders will have to drop sinkhole coverage altogether and that is absolutely dangerous in the state of Florida.

He called the phase-in plan a “ploy” by Citizens to distract policyholders from the long-term impact of the proposed rate increase.

“They are still asking for a 2,000 percent increase for Hillsborough County, 400 percent for Pasco and 600 percent for Hernando.  Have they gotten up here and amended their original request?  No, they haven’t, but they put this ploy in place,” Senator Fasano said.

If the proposed Citizens’ rate increase is approved, private insurers will follow suit and file for increases as well, Senator Fasano predicted.

Representative Jimmie Smith of Iverness told regulators it was too late to be asking what the other side thinks about the rate hikes with a pending deadline of Monday.

“These things should already have been done.  You should have already talked to the policyholders,” he said.

Policyholders, many who traveled to the public hearing by bus, walked to the podium one by one and blasted Citizens for its “greed and insensitivity.”

“This is getting to the point of where ‘who is going to be the last one to shut out the lights’ in the state of Florida,” said Rose Rocco, a former Hernando County Commissioner.  “Homes used to be the American Dream.  Now it’s the American nightmare.  I would really ask that you think hard on this decision and throw it back in their court and say come back with a better decision because this is unacceptable.”

A retiree from Spring Hill told regulators he built a house he loved four years ago, but now was disillusioned by the skyrocketing costs of insurance.

“How do we older people manage to pay more money for the insurance than for the mortgage?” he asked.  “We are getting fed up with it.  I think I am going back to New York.”

A woman who lives in Pasco County tearfully told regulators how her family had progressively moved from other states into Florida starting in the late 1970s and were now all immobilized by the rising costs and unemployment.

She urged regulators to find the people who are committing insurance fraud and driving up costs for everyone else.

“Find fault and go after the people who are taking advantage of us through fraud,” she said.  “We can’t take a gun and protect ourselves from this invasion.  This is our property.”

Said another angry resident about the proposed rate hike:  “The west coast of Florida will become a ghost town.”

Ms. Binnun acknowledged that Citizens has built up a very large surplus, but said that surplus would be at risk if a strong hurricane struck Florida.

“We also have a responsibility with respect to rate making and to the insurance-buying public.  If we have a catastrophic event and debts are triggered, assessments are possible,” Ms. Binnun stated.

Commissioner McCarty ended the hearing by acknowledging Florida’s high level of unemployment, saying “some of the rate increases are just not viable.”  He said the information submitted during the hearing will be carefully reviewed as the OIR continues its deliberations regarding Citizens’ proposed rate increase.

With no further business, the hearing was adjourned.

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