The proposed rate increase would have resulted in some areas seeing nearly a 2,700 percent hike, according to the commissioner.

The Citizens board earlier this month voted to phase in the sinkhole 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 its analysis of SB 408.

Additionally, McCarty tells Citizens it must hire an independent firm to study claims and the impact of SB 408 on sinkhole losses.

McCarty says in a statement, “more credible data and study is required” but the rates he approved should “start Citizens on the path of having a sound rate for their sinkhole risk.”

SB 408 contains important provisions to reduce sinkhole claims—including a definition of “structural damage.” The frequency and severity of sinkhole claims have been rising recently, in part due to the lack of a definition, leading to claims for cosmetic cracks.

Furthermore, the new law requires homeowners to use money paid on a sinkhole claim to actually fix the damage and that repairs be made “in accordance with the specifications of the insurer's professional engineer's report.” Finally, the law now caps compensation to public adjusters to 10 percent of the claim payment.

In each case, according to McCarty's order, Citizens “provided no credible evidence” that it assessed the effects of SB 408 when making its rate-increase request.

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

The OIR is “unable to find that the upward trend for sinkhole losses that Citizens assumes is actuarially supported.”

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

New rates will take effect Jan. 1 for new and renewed multi-peril policies and Feb. 1 for new and renewed wind-only business.

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