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Citizens' sinkhole plan could cut rates
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 the 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 support 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."
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