Under pressure from state leaders and consumer advocates, the Citizens Property Insurance board voted Monday to raise rates gradually for optional sinkhole insurance, instead of jacking them up right away by as much as 2,000 percent or more.
The decision, which would raise rates 50 percent in the first year, came on the eve of a hearing that state insurance regulators have scheduled Tuesday in Tampa to consider the rate request.
The board had voted in late July to raise sinkhole rates statewide by 430 percent on average to make them actuarially sound -- and by as much as 2,300 percent in Pinellas County. Tampa rates would have risen by 2,239 percent on . The Bay area has earned the nickname of "sinkhole alley" because of insurers' heavy losses on claims there.
The Citizens board's vote during its emergency Monday hearing by teleconference does not actually change its rate request. The state-backed insurer still plans to ask state Insurance Commissioner Kevin McCarty to approve the same increases.
But Citizens now plans to phase in those rate hikes over an as-yet undetermined number of years. After the first year's 50 percent increase, Citizens would decide on an annual basis how to implement the remaining rate hike.
Under the plan, Tampa policyholders would see their rates rise from $155 to $233 on average that first year. Rates for coastal Pasco County would rise from $1,272 to $1,908 on average in year one.
Board Chairman Carlos Lacasa said the phase-in would balance the "competing interests" of the company's financial soundness and its mission to serve consumers in a difficult insurance market.
That's not good enough, insisted Sen. Mike Fasano, R-New Port Richey, who fought the legislation that enabled Citizens to request the rate hike and is trying now to convince state regulators to reject the proposal.
"This is the way that Citizens is trying to… dissuade people from showing up at the hearing tomorrow," Fasano said. "But for Pasco and Hernando and Hillsborough counties, this still means a very large increase for homeowners."
Lawmakers who had supported the enabling legislation applauded the insurer's tack, however.
"We know that it is going to take time for these reforms to work, and we also know that Floridians cannot shoulder such dramatic increases particularly in the middle of a national recession," House Speaker-designate Will Weatherford, R-Wesley Chapel, said in a prepared statement. "I commend Citizens for appropriately considering these factors in their recent rate decision."
Sinkhole coverage is an optional line of insurance, though some mortgage lenders require it. Standard property insurance must cover "catastrophic ground collapse" -- an extreme event that renders a property uninhabitable -- while sinkhole coverage compensates for lesser damage, like cracks in a wall.
Insurers told lawmakers this spring that frequent and fraudulent sinkhole claims are causing an industry crisis. In response, the legislature and Gov. Rick Scott narrowed the definition of a legitimate sinkhole claim, limited the window for filing a claim and let insurers require policyholders to spend their entire payout on repairs.
Those reforms appeared in the same legislation that enabled Citizens to request actuarially sound rates for sinkhole coverage right away. Increases for standard Citizens coverage remain capped at 10 percent a year.
Last month, state Insurance Commissioner Kevin McCarty and some lawmakers suggested that Citizens may not have factored in the savings expected from the new insurance reforms. Under questioning by members of the state Cabinet, McCarty hinted that he might not go along with Citizens' request if it did not find a way to ease the blow to consumers.
During Monday night's board meeting, however, Citizens staff defended their analysis. Had they not factored in anticipated savings, they said, they would have recommended a 60 percent higher rate increase.
Deputy Insurance Commissioner Belinda Miller told the Citizens board that state regulators will want to hear more at Tuesday's's hearing about "all of the different ways Citizens considered the effects of the bill, and how it's changing their business operations, etc."
Fasano said that he and Policyholders of Florida, a consumer advocacy group headed by former state Insurance Consumer Advocate Sean Shaw, are loading up 150-200 consumers on three buses to attend today's hearing, which will be held at 4 p.m. in Ballroom D at the Tampa Convention Center, 333 South Franklin St..
"This was a fight worth fighting, and a fight that won't stop today," Shaw said.