Citizens plan could cut rates
The state's Citizens Property Insurance proposes letting customers drop sinkhole coverage from their policies.
By DAVID DeCAMP
Published September 30, 2006
Pasco and Hernando residents could see big drops in their property insurance bills from the state-run Citizens Property Insurance Corp.
Citizens announced Friday that it wants to allow customers to drop sinkhole coverage from their policies. If the state regulators allow it, Citizens estimates that rates could drop by as much as 43 percent in Pasco and 28 percent in Hernando with policies starting March 1. People who renew before that date could get a refund if they cancel and reapply under the new rates.
While lawmakers and Citizens officials heralded their response as a boon to ratepayers in some of the hardest-hit areas, other observers said many questions remain.
If the Office of Insurance Regulation approves the change, all Citizens policies will cover "catastrophic" ground collapse that destroys a house, even if the homeowner didn't have sinkhole coverage.
Cracks in driveways or foundations would not be covered. But it was unclear what would happen to folks in between.
People who keep sinkhole coverage will have rate increases and a 10 percent deductible. And people with high-risk properties will not be allowed to cancel sinkhole coverage.
Meanwhile, people with mortgages could find themselves locked into sinkhole coverage if their lender demands it. Both issues could be crucial to determining whether Citizens' proposal actually makes a difference for people, said insurance lawyer Timothy Volpe, who is expected to help Pasco County commissioners fight for lower rates.
"I have to admit I'm a little dumbfounded by the way they're handling this," Volpe said.
Citizens, by design Florida's insurer of last resort, has a third of the policies in Pasco, where it has raised rates 139 percent in coastal areas. Hernando has faced 86 percent hikes. Citizens has seen sinkhole claims rise from nine to more than 600 in the past five years, mostly in the two North Suncoast counties dubbed "sinkhole alley." Citizens said it paid $40-million in sinkhole claims last year.
In a news release, Citizens president Bob Ricker said the changes will protect the consumer and help re-establish private-sector coverage in counties rattled by sinkhole claims. The change is separate from state regulators' decision to lower the basis for sinkhole coverage by 14 percent in Pasco starting Oct. 1, along with legally required higher deductibles.
Two Pasco lawmakers, state Sen. Mike Fasano and state Rep. John Legg, said they supported the changes.
"A 43 percent decrease is desperately needed," said Legg, R-Port Richey, though he added that the loss of "crack and settle" coverage would bother lawyers.
But just because homeowners can do without sinkhole coverage doesn't mean they should, and it doesn't mean banks will let them, either, said Don Page, president and chief executive officer of Cortez Community Bank in Hernando. Lenders won't want to shoulder the risk, especially in an area pocked with sinkholes, he said.
Page said he would likely require sinkhole coverage as a condition of the loan, or at least mandate an inspection showing that the property isn't on top of a sinkhole. He said Florida banks would have to retool their lending policies.
"The bank owns the property and doesn't want to own property with a sinkhole problem and no insurance," he said.
Two of Page's employees suffered sinkhole damage this year.
"If they didn't have the insurance, they'd be up a creek without a paddle," he said.
Christopher Kowalczyk, of Hudson, whose Citizens premium has gone from $800 to $2,800 since 2003, had many of the same questions. The bill for his 900-square-foot home doesn't specify what he's paying for sinkhole coverage, he said.
The vice president of Homeowners Against Citizens Florida, a group fighting rate increases by the state insurer and private companies, Kowalczyk said he needs more information.
"I don't know the details of it yet, so if they're giving some kind of reduction, that's great," he said. "But if it's like that issue where they reduced sinkhole rates 14 percent, well, you can't get that back with a higher deductible."