It doesn't take a CPA to recognize that Citizens Property Insurance Corp. is in a big hole when it comes to providing full sinkhole coverage and has to find a way to dig out.
The taxpayer-subsidized "insurer of last resort" – now the state's biggest property insurance carrier – last year reported $245 million in sinkhole claim losses while collecting just $32 million in sinkhole premiums. Since 2006, Citizens had nearly $500 million in sinkhole losses stemming from more than 6,500 claims – the vast majority in Hernando, Pasco, Hillsborough and Pinellas counties.
Over the last nine years the number is nearly $1 billion
But now it seems Citizens wants to immediately recoup all its losses by proposing cruel rate increases that average nearly 430 percent statewide. Many policyholders in the Tampa Bay area, including the city of Tampa, would likely faint when receiving their bills, should the proposal be approved by state regulators. Residents would be facing increases of more than 2,000 percent.
This is a heavy-handed approach that needs to be tempered, especially in the Tampa Bay area, part of which is in "sinkhole alley." If the rate proposals are adopted, the likely result would be that the many adversely affected property owners would forgo full sinkhole coverage, putting their financial well-being and property investments at risk – unless they're wealthy and can afford to make repairs themselves.
In addition, you can bet private companies are watching and will take the Citizens' approach should the Office of Insurance Regulation approve the proposal. That could prove disastrous for all homeowners in Florida who want full protection from sinkholes – not just the built-in coverage that kicks in if their homes are swallowed by a sinkhole and become uninhabitable.
If the goal of insurance companies is to get out of providing sinkhole coverage altogether, the state should not allow it.
Some rate adjustments are undoubtedly necessary, but the increases being eyed by Citizens are absurd. At the least, any rate increase deemed necessary should be phased in over a number of years – not slapped on policyholders at once.
For many of these residents, comprehensive sinkhole coverage is required by banks and mortgage companies. The rate increase, for some, could mean an additional $4,000 a year. Yes, Citizens needs to charge actuarially sound rates to protect taxpayers and customers, but the state must consider the financial hardship on Floridians.
Here's another problem: The Legislature has capped at 10 percent any annual increase in Citizens' policyholders' standard rates, but lawmakers last session exempted additional sinkhole coverage from the cap. This is wrong. A cap should apply to annual sinkhole premium increases as well, to protect homeowners from hardship.
Citizens and state regulators also need to be patient and find out whether a new property insurance law, which took effect in July, will work. It is impossible to know yet.
Several insurance rules have been dramatically changed – including tightening the definition of what constitutes a legitimate sinkhole claim and reducing the time property owners have to file claims for hurricane, windstorm and sinkhole damages from the date of the event.
Of particular importance are changes that limit sinkhole coverage to primary structures only, and requires owners to repair damage. If the repairs cannot be done within the limits of the policy, the company can either pay the policyholder the limits or provide the additional money to complete the repairs.
These are tough – and in some cases, unfair – restrictions. Suppose you have paid sinkhole premiums for years and then your home is seriously damaged by a sinkhole. The home's value will plummet, yet the Legislature is mandating it be repaired – regardless of the financial consequences for you. It would hold owners hostage in their homes.
There is also a disturbing bias against property owners in Tallahassee. Many lawmakers and others behind sinkhole insurance reform constantly claim that widespread "fraud" and "abuse" is afoot, pointing out that some property owners are winning a sinkhole lottery and buying boats and other items instead of fixing their homes. If so, where are the arrests and prosecutions, and why aren't lawmakers holding Citizens and other insurance companies accountable for not doing their due diligence?
Why are insurance companies so willing to pay testing and sinkhole remediation companies high fees – which can easily exceed more than $100,000 per home? We know of one instance where a testing company was paid $50 an hour for providing a "monitor" at a site just to count cement trucks and monitor pressure on gages during the grouting process. Nice way to make a living.
Lawmakers and other forces behind sinkhole reform conveniently overlook that Citizens and other insurers do not have to pay claims if no evidence exists of a sinkhole and that banks and mortgage companies can mandate that any proceeds be used to repair homes.
But if this is all such a scam, why has Citizens paid so many claims, especially in the Tampa Bay region? Are their inspectors incompetent, or is "sinkhole alley" indeed "sinkhole alley"? It's clear that many of us live in sinkhole-prone areas, whether lawmakers want to believe it or not.
As we've said before, the state should not be in the property insurance business. But Citizens customers who have fully insured themselves against sinkholes have every right to file a claim. They are not the bad guys.
Higher premiums, not doubt, are part of the costs of living in a state where sinkholes are common. But while Citizens cannot continue paying sinkhole claims at this rate, it should not punish property owners with massive and sudden rate increases that would force many to drop their coverage.