NU Online News Service, Sept. 20, 9:50 a.m.EST

Florida Insurance Commissioner Kevin McCarty says the state'sinsurer of last resort did not provide evidence to support itsrecommendation to raise rates for sinkhole insurance by a statewideaverage of 447 percent.

The commissioner late last night—after postponing a pressconference—reduced Citizens Property Insurance Corp's rate hike forsinkhole coverage to 32.8 percent.

"Citizens' requested sinkhole rate change, which would result inaverage increases of as much as $5,521, is not supported bycredible evidence," McCarty's order reads.

The proposed rate increase would have resulted in some areasseeing nearly a 2,700 percent hike, according to thecommissioner.

The Citizens board earlier this month voted to phase in thesinkhole coverage rate hikes, starting with 50 percent in 2012, but the Office of Insurance Regulation(OIR) chose to slash the rate recommendation more, based on itsanalysis of SB 408.

Additionally, McCarty tells Citizens it must hire an independentfirm to study claims and the impact of SB 408 on sinkholelosses.

McCarty says in a statement, "more credible data and study isrequired" but the rates he approved should "start Citizens on thepath of having a sound rate for their sinkhole risk."

SB 408 contains important provisions to reduce sinkholeclaims—including a definition of "structural damage." The frequencyand severity of sinkhole claims have been rising recently, in partdue to the lack of a definition, leading to claims for cosmeticcracks.

Furthermore, the new law requires homeowners to use money paidon a sinkhole claim to actually fix the damage and that repairs bemade "in accordance with the specifications of the insurer'sprofessional engineer's report." Finally, the law now capscompensation to public adjusters to 10 percent of the claimpayment.

In each case, according to McCarty's order, Citizens "providedno credible evidence" that it assessed the effects of SB 408 whenmaking its rate-increase request.

Citizens merely assumed future sinkhole losses would parallelthe frequency and severity of other types of losses, such as fireand water. The OIR disagrees.

The OIR is "unable to find that the upward trend for sinkholelosses that Citizens assumes is actuarially supported."

McCarty also cut into Citizens' request for a 21.2 percentaverage statewide rate increase for homeowners multi-peril andwind-only policies, as well as its request for an 18.1 percentincrease for dwelling fire policies. McCarty instead set rate hikesof 6.2 percent and 8.6 percent, respectively.

New rates will take effect Jan. 1 for new and renewedmulti-peril policies and Feb. 1 for new and renewed wind-onlybusiness.

It took 45 days to access and rule on Citizens' raterecommendation. Within this period, a public hearing was held atthe Tampa Convention Center. Several hundred people attended. Itwas also broadcast on television and homeowners were able to emailcomments to the OIR.