Insurance News

Citizens Property Insurance grilled about rate hike request

Posted on: September 19, 2010

Citizens Property Insurance Corp. officials were questioned Tuesday about the insurer’s request for an average 8.4 percent statewide rate hike.

That includes an average increase of as much as 11.3 percent in parts of South Florida and a 9.3 percent statewide rate hike for policies that cover homes, condominium units, renters, mobile homes and vacation or rented property.

Some policyholders’ rates would decrease under the proposal. Regulators have until Sept. 23 to approve the requested rate hike for homeowners policies and until Oct. 17 for condominium association policies.

Citizens is the largest property insurer in the state with nearly 1.2 million policies, including about half in South Florida.

Questions from Office of Insurance Regulation officials and consumer advocates included:

Why does state-backed Citizens want to collect seven times what private insurers typically request for emergencies or unforeseen events?

“I don’t know where you got 24.7 percent,” said Deputy Insurance Commissioner Belinda Miller.

The Insurance Consumer Advocate’s office noted that private insurers’ so-called profit and contingency factors combined are typically close to 3.7 percent. And Citizens, Florida’s insurer of last resort, doesn’t have to worry about earning a profit.

Paul Palumbo, Citizens’ senior vice president of underwriting, said Citizens has had a hard time predicting losses and expenses based on past experience. For instance, this year the company took on about 200,000 more policies because two insurers folded. It has far more older mobile home policies than it expected, Palumbo said.

“Those are the kinds of things [the contingency factor] intended to capture,” he said.

How is Citizens going to pay for a huge rise in sinkhole claims costs when its premium increases are capped at 10 percent by a state law?

Citizens collected $19.6 million in premiums specifically for sinkhole coverage in 2009 but paid out $97 million in sinkhole claims and expenses. Most of the sinkhole claims were for minor cracks in walls and driveways, according to the insurer.

Citizens officials said its rate hike is needed in part due to higher claims costs for sinkholes, fires and other problems.

Bob Lee, an actuary for the insurance regulation office, said calculating rates should be “prospective, not retroactive” but said it makes sense to look at the past data to help predict future costs.

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