Citizens Property Insurance Corp. On Tuesday approved a proposed 7.2% average rate hike for policyholders in residential areas, while also backing a plan that could result in significantly higher rates for new customers of the state-covered insurer in the future.
The Citizens Board of Governors has taken the steps as there is an increase in additional policies given the problems in the state’s private property insurance market. The issues have driven private rates soaring, causing businesses to pull back to cover homes and prompting customers to turn to citizens.
“The goal here is to create a healthy, private Florida insurance market that better represents what we are supposed to be, Florida’s insurer of last resort,” said Carlos Beruff, chairman of the Citizens Board.
According to the proposal, the rate changes would vary widely depending on factors such as types of policies and locations. For example, homeowners would see an average increase of 6.1%, while condominium and mobile home policies would see a higher average increase, according to Citizens.
But people buying policies from citizens in the future could see much higher insurance costs due to a separate plan that obliges new customers to pay actuarially sound rates. A 2011 law caps annual increases for existing customers to 10 percent, which means many don’t pay actuarially sound rates.
The proposed rate increase and the change for new customers would have to be approved by the state agency for insurance regulation. The rate hike would take effect in August.
Citizens’ staff initially proposed an average 3.7% increase in housing rates, but the board last month urged staff to work with regulators to find possible ways to increase rates.
This led to changes in the proposal to raise the proposed average increase to 7.2%. For example, the revised proposal would lead citizens to set aside additional premium dollars to avoid the possibility of so-called “ratings”. Such assessments could be sought from policyholders across the state – including non-citizen customers – as major hurricanes hit Florida and flood citizens with costly claims.
Another part of the revised proposal would eliminate a practice that allows some citizens to receive price reductions. These customers would not see changes in their premiums, but decreases.
The proposal came when citizen officials were alerted about the influx of action. According to information released by citizens on Tuesday, the total rose from 443,000 to 552,000 last year. Officials have said the total could reach 630,000 policies or more this year.
Heads of state have long pushed for citizens’ politics to be shifted to the private market. A combination of issues, including higher reinsurance costs and what the industry calls excessive litigation, has seen private insurers hike rates by double-digit percentages and drop policies over the past year.
The result is that citizens often charge less for coverage than private insurers. Citizens President and CEO Barry Gilway said the situation has resulted in the state-sponsored insurer being the “most competitive player on the street” and the most financially sound player.
It remains unclear whether the state agency for insurance regulation will sign the master plan for new customers. Gilway said regulators had taken no position on whether they could approve the plan or whether it would take action by lawmakers.