Staggering, unconscionable, devastating, incomprehensible…such is the hyperbole misshaping both the intent and impact of Citizens sinkhole rate increase–unanimously recommended by its board week before last. Leading the army of distortionists is Senator Mike Fasano (R-New Port Richey) and Florida’s former Insurance Consumer Advocate, now a staunch advocate for public adjusters, Sean Shaw.
With legions of misinformed activists and some media outlets behind them, the two are calling for statewide hearings and urging Sinkhole Alley residents to join them August 16 for a flag waving protest to which they’ve invited Gov. Rick Scott and CFO Jeff Awater. Governor Scott, CFO Atwater and Insurance Commissioner Kevin McCarty have each been asked to oppose the hike. CFO Atwater is urging that it be implemented “gradually”.
What’s troubling is whether the Senator and Mr. Shaw know how many followers they are hurting in order to unjustly enrich a small minority. I’m compelled to assume they don’t know since the alternative, they don’t care, is too painful to contemplate and significantly out of character for both of them.
Here are the facts.
Citizens sinkhole premium deficit is around $245 million and growing. Those receiving the benefit of a premium that is about 450% too low make up only about 20% of Sinkhole Alley’s 250,000 Citizens policyholders; about 50,000 people, total of 90,000 statewide. Eighty percent in Sinkhole Alley do not buy the coverage, even at today’s bargain basement price; far fewer buy it in the remaining counties.
Also, the coverage is elective and is not required by mortgage lenders, else how would so many be able to go without it? Fannie Mae doesn’t require it and no lenders require similar coverage in “any” other state including earthquakes in California or mine-subsidence coverage in West Virginia–in stark contrast to what Senator Fasano has been saying. And, the payout for this coverage in Florida isn’t for anything nearly as catastrophic; it’s for settlement cracks in driveways and sidewalks and, according to numerous state studies, it’s spent on vacations and mortgage pay-offs, not repairing damage if, indeed, there was any.
Citizens premium deficits, like those of any carrier, reduce surplus. Unlike private carriers, however, Citizens assesses its own policyholders up to 15% for such deficiencies. Those assessments are paid by “all” Citizens policyholders after a storm. If it’s not enough, private market policyholders must also chip in.
This means that; approximately 50,000 people from just a few counties, “choosing” to purchase a coverage no one else wants, even at today’s discounted price, are being unjustly enriched via backdoor fees charged to everybody else; including some who don’t even own property. This has prompted some to ask, “if they don’t like the price, why can’t they do what everybody else has already done and not buy it?”
It also prompts some to ask who the winners are here? Well, a handful of Public Adjusters and attorneys who want their share of the claim payout that flows to those 50,000 people, would be one answer!
Keep in mind this solution (removing sinkholes from Citizens 10% premium cap) was first brought to light by the consumer advocates office, the one Sean Shaw used to head up. Florida lawmakers only implemented the consumer advocates recommendation delivered during the Citizens rate hearing in December of last year. While Sean Shaw had already left to join the Merlin Law Group, where he often defends public adjusters, the motivations of his former office was…consumer protection.
Everyone has coverage against sinkhole damage. The question here is, how much are you willing to pay so a substantial minority can buy a different coverage, (sinkhole “activity” coverage), which pays for settlement cracks?
No doubt next week’s demonstration will attract a lot of people. My bet is the majority will be among the 50,000 plus who want the rest of us to keep on paying their bills.
Either way, it’s not going to be a pretty sight!
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End Note: There is both logic and irony in the suggestion that the reforms of SB-408 might reduce the future payout for sinkhole losses and thus the need for such a large rate increase. The irony is that, since those reforms include requiring claim dollars to be spent on repairs, those who bought it, the 50,000, are likely to drop the coverage, even if the indicated rate need was a reduction.
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