Insurance News: Citizens’ board voted to boost overall rates by about 7.5 percent for 2014

Insurance rates at Citizens Property Insurance Corp. – the state-run insurer of last resort – are headed higher again.

Citizens’ board, meeting in Miami Wednesday, voted to boost overall rates by about 7.5 percent for 2014.

Single-family homeowners will see an average rate increase of 6.2 percent, excluding optional sinkhole coverage, while condo unit owners will face an average 8 percent rate increase in 2014.

Commercial rates are to rise 9.1 percent on average.

Rates for sinkhole coverage – which is not covered by a 10 percent annual cap on increases – is projected to rise much more than other coverage. In Florida’s west coast counties like Hernando and Pasco, sinkhole rates will rise 20 percent, under the board’s action. Hillsborough County will see sinkhole rates jump by 50 percent.

In Pasco County, premiums for optional sinkhole coverage alone cost homeowners about $1,800 a year. But that is still far below the “actuarially sound” rates, the levels that risk experts calculate rates should be to cushion against potential losses.

The Florida Office of Insurance Regulation (OIR) must approve the proposed rates before they take effect. That seems very likely because Citizens’ board based the hikes on OIR’s own calculations of how much the company needs to cover risks next year.

Individual premiums vary dramatically depending on a host of factors such as the location, age, type of construction and storm protection, and coverage options.

The rate hike comes as Florida’s property-insurance landscape is in flux while Citizens moves to foster the growth of small Florida-domiciled firms in a bid to shift risk to the private sector.

Among the most controversial moves: Heritage Property and Casualty Insurance Co. – a St. Petersburg-based company that was created last year and made major political contributions to Gov. Rick Scott – will get up to $52 million from Citizens to assume up to 60,000 Citizens’ policies.

Many Citizens’ policyholders have been receiving notices their policies are being assumed by companies such as Heritage.

In order to stay with Citizens, policyholders must affirmatively choose Citizens. If they do nothing, they will end up with the private company.

Homeowners will be able to discuss insurance concerns with Robin Smith Westcott, the state’s Insurance Consumer Advocate, who will be at the South Dade Government Center Thursday from 6 to 7:30 p.m.

Westcott recently questioned the wording in Citizens’ assessment notices, which warns policyholders: “I understand that I can avoid the Citizens policyholder surcharge, which could be as high as 45 percent of my premium, by obtaining coverage from a private market insurer …” That amounts to “scare tactics,” critics say, because the likelihood that Citizens would have to make a 45 percent assessment is very remote.

But as it turns out, that language was required by recent legislation.

Such take outs by private companies are among a host of strategies that Citizens is pursuing in a bid to shed policyholders, even as it sits on a record $6.3 billion surplus with the financial wherewithal to pay out $14.04 billion in claims in the event of a catastrophe without any assessment on policyholders.

Other slim-down strategies: Citizens is creating a clearinghouse that will begin operating next year to review all policy renewals and applications for new coverage to see if they can be steered to the private sector.

Citizens’ existing policyholders will be required to take the private alternative if it’s available at the same price as Citizens’ coverage. For new policy applicants, the price must be within 15 percent of Citizens’ rates in order for them to be deflected to the private market.

Citizens is also dumping more expensive homes. Under recent legislation, Citizens will be barred from insuring homes over $1 million beginning next year. That cap that will be lowered by $100,000 annually to reduce the maximum value to $700,000 by 2017.