Officials of Florida’s state policyholders-backed insurer turned away from several controversial plans that would have raised rates on new policies above current policyholder rates and implemented a cap on water damage, instead adhering to its statutory caps on rate increases.
Citizens Property Insurance Corporation officials called for a statewide average 8.9 percent increase for homeowners’ rates, coming in under its annual statutory cap of 10 percent. The insurer also called for sinkhole rates to reach actuarial levels, except in the sinkhole prone areas of Hillsborough, Pasco, and Hernando counties, where individual policyholders’ rates would increase by no more than 50 percent.
The decisions come just a day after a number of private companies and investors stepped forward with several depopulation plans.
With that in mind, board member John Rollins said the proposed rates needed to send a signal to the market that the insurer is serious when it comes to reducing its policyholder roles.
“A positive rate posture by territory is essential for depopulation,” said Rollins, during discussions about the filing.
In taking the action that it did, the board sidestepped a number of controversial proposals that had become the focus of the filing.
Number one on that list is whether to increase rates on new business above the annual statutory 10 percent cap on new business. The issue had become a political and public lightening rod and board members quickly indicated they would not make that move with no real discussion.
While there were political considerations in the decision there is also the fact that it would add little to Citizens bottom line.
In a staff analysis, the estimated additional premium of implementing actuarially rates on new business in 2013 would only be $28 million and $13 million if the cap was set at 25 percent. And upon renewal the policies would fall back under the 10 percent cap. Additionally, the analysis said that amount would be reduced by having to maintain two different rating plans for new and current policies.
The good news for Citizens’ sinkhole losses is that the impact of a comprehensive set of reforms enacted in 2011 are expected to help drive down costs. The Insurance Service Office indicated that could result in as much as a 54.7 percent savings next year, most of which is due to a change in definition of structural damage.
In approving the 8.9 percent rate increase board members did want to give regulators at least a look at the rates if Citizens included a risk load factor that reflects the additional capital costs associated with covering the insurer’s hurricane risk. With the risk load factor, the rate indication would have jumped to 10.2 percent.
Rollins pressed to have the final rate request reflect the risk load on the basis that it would produce higher rates in inland areas thus possibly spurring the depopulation plans that several private companies are contemplating.
“This could help solve the problem of being competitive with the private market and help depopulation,” Rollins said.
Citizens Chief Financial Officer Sharon Binnun, however, noted that in the past regulators have disallowed the rating factor. But she said there could be a benefit to at least forwarding a side-by-side comparison of the two rating plans.
“This would provide all the information to regulators and the public,” Binnun said.
In the end, by a voice vote the board agreed with Binnun while staying with its original decision.
Another major issue that Citizens officials declined to move forward with was a $15,000 cap on non-flood water damage, such as sewage backup, which represents the second largest non-catastrophe claims costs behind sinkholes.
Several claims adjusters spoke saying that the cap is not based on data and is therefore arbitrary to the disadvantage of policyholders.
Several board members including Nancy Bailey maintained that the insurer should continue providing the coverage.
It proved to be a win for policyholders who have seen their coverage reduced as Citizens has implemented a number of changes such as no longer providing coverage for screened enclosures, reducing personal liability coverage, and not insuring homes over $1 million.
Board Chair Carlos Lacasa, however, warned that the insurer could not put the issue off forever. “I think water will be the next sinkhole and I want to be vigilant about that,” he said.
Homeowners are not the only policyholders who could see rate increases next year.
Citizens is calling for commercial lines policies to increase by a statewide average 10.2 percent based on the statutory 10 percent rate cap.
The increase could raise the insurers overall commercial premiums by $44 million. The insurer currently has some 8,900 commercial policies with a variety of coverage.
Condominium owners could see an average 9.9 percent increase, renters a 10 percent increase, and mobile homeowners a 2.9 percent increase.
The rate filings will now be sent to the Florida Office of Insurance Regulation, which will have 45 days to conduct a public hearing and make a final decision on the rates.