Gov. Rick Scott signs law that eliminates Citizens' cap on sinkhole rates

Gov. Rick Scott said during his 2010 campaign that Florida's government-run "insurer of last resort" had become the "insurer of first resort" — and he wanted to fix that, encouraging private insurers to take on more of the state's risk.

Part of the problem, he argued, was that Citizens Property Insurance Corp.'s artificially low rates made it hard for private insurers to compete. 

Florida law requires Citizens rates to be "actuarially sound," said Jack McDermott, a spokesman for Florida Office of Insurance Regulation. As we've reported previously, generally that means charging enough that premium payments and interest income earned from them will cover projected claims and other costs without additional assessments.

But to protect rate-payers, Citizens couldn't legally increase its rates by more than 10 percent a year. So if soundness required raising rates more than 10 percent? Tough.

Citizens wasn't entirely hamstrung -- there are some exceptions for things like "cash buildup" -- and its reserves put it on stronger footing than the state's private insurers. Still, lawmakers say that the insurance company, now Florida's largest with more than a million policy holders, may not have enough money to pay all the anticipated claims if a large storm hits. If Citizens comes up short, it can assess extra fees to all home, car and business policies -- even those who aren't Citizens customers.

That means uncertainty Scott didn't like.

He promised to work with Florida's Legislature to "eventually eliminate the government-run program's reliance on assessments following a major disaster and ensure that Citizens consistently operates on actuarially sound rates."

In May 2011, he signed a bill that eliminates the 10 percent cap for sinkhole coverage. That falls short of his goal of across-the-board change, but is a notable step toward his campaign promise. Indeed, it may lead to a significant increase in sinkhole policy premiums.

The St. Petersburg Times reported that rate increases requested by Citizens in the wake of SB 408, if approved by the state's Office of Insurance Regulation in September 2011, would mean the average premium for a sinkhole policy in coastal Pasco County would increase from $1,270 to $3,598. In coastal Hernando County, premiums would rise from $1,356 to $5,734.

(Pasco Rep. John Legg, R-Port Richey, sent a letter to Florida insurance commissioner Kevin McCarty arguing SB 408 also reduces costs for insurers, and that Citizens' proposed rate increases fail to take that into account. The office has yet to rule on Citizens' request.)

Now, other than signing the law, is there evidence that Scott worked with the Florida Legislature to make this happen?

We asked Sen. Garrett Richter, R-Naples, who along with Rep. John Wood, R-Winter Haven, sponsored the legislation. Richter said he met with the governor throughout the 2011 legislative session, as well as with his staff, and that Scott was engaged in the "promotion and construction" of the bill.

"He was supportive of the section that permitted Citizens to request actuarially sound premiums for the sinkhole portion of their policies," Richter said.

Scott's deputy communications director, Amy Graham, said much the same thing: "The governor and his staff worked closely with Sen. Richter and the House and Senate to pass meaningful legislation in order to begin addressing property insurance cost drivers. We are supportive of the ability to charge appropriate rates for sinkhole coverage."

Scott had pushed for much more. The Sarasota Herald-Tribune reported in April that documents showed he wanted to shut down the government-run insurer. (He clarified that he wanted Citizens to be a "last resort.") Meanwhile, another bill supported by Scott, SB 1714, would have allowed Citizens to raise rates by up to 25 percent a year, but that didn't pass.

But Scott got part of what he wanted: Citizens may now ask for rate increases large enough to make its sinkhole coverage pay for itself, no matter how big an increase that requires. And according to Scott's office and the lawmaker behind the change, he worked with the Legislature to get it done. We're now rating this promise a Compromise.