After weeks of haggling among state lawmakers, the freeze that has kept Citizens Property Insurance Corp. rates locked in place for the last three years will soon end. But that doesn't mean the debate over pricing will finally stop.

By the time that Citizens' officials finally turn in their 2010 rate filing — which cannot be submitted any earlier than July 15 — those who govern the state's largest property insurer have to decide how to structure the rates by region and by policy line. Moving back toward actuarially sound rates brings with it wide-ranging questions about how much fluctuation there should be for those rate payers who live in the high-risk coastal areas versus those policyholders who reside inland.

Would it be fair, for example, to keep rates in some areas frozen at their current levels even if the models showed a potential decrease? Or should Citizens just adopt a blanket 10 percent rate hike for all policyholders regardless of where they live?

“A majority [of policyholders] will see an increase, but there are some who will see something different,” predicted John Kuczwanski, public information manager for Citizens.

State lawmakers in 2007 froze rates for Citizens, the state-created insurer initially set up to serve as a backup for those unable to get insurance elsewhere. Under legislation passed by lawmakers in May and signed into law by Gov. Charlie Crist, that freeze is scheduled to expire in January 2010.

But instead of letting Citizens charge actuarially sound rates, lawmakers placed a cap on how much those rates could increase in any one year. This so-called “glide path” would limit annual rate increases to 10 percent per policyholder until rates are actuarially sound.

The legislation also allows Citizens to pass on the cost of higher premiums associated with the Florida Hurricane Catastrophe Fund. The fund now has the ability to impose a “cash build-up” factor on insurers as a way to boost the financial reserves of the state-created reinsurance fund. This charge is expected to raise rates an additional one percent.

The final rate hike decision was a political compromise. Crist was unwilling to support legislation that would have allowed individual policy hikes up to 20 percent, a move initially supported by the House.

But even Crist — who first agreed to the rate freeze shortly after he became governor — acknowledged a need to shore up Citizens. The insurer currently has 1.04 million policies across the state and a total exposure in excess of $400 billion.

Rates Could Vary

Now Citizens' officials are looking at how to carry out the proposed 10 percent hike allowed under law.

Detailed actuarial charts show that the rates could vary greatly based on the type of Citizens' policy held and the location of the policyholder. The total rate hike will be driven by the amount of exposure that Citizens has in certain high-risk areas, such as the coastal counties of Broward, Miami-Dade, Monroe, and Palm Beach.

That means, for example, residential homeowners with multi-peril policies would likely get a statewide increase of 3.5 percent, but policies in individual areas could fluctuate.Residential homeowners in South Florida would likely pay 10 percent more, but rates could remain unchanged for policyholders in other places such as Duval or Bay counties. Residential multi-peril policies may go up no more than 4.3 percent for coastal Manatee residents, but could jump as much as 10 percent for those living in Hillsborough and Pasco counties.

Likewise, residential policyholders with wind-only policies would pay, on average, 5.9 percent more than they currently do. But those wind-only policyholders in South Florida would likely get a 10 percent rate hike because actuarial charts for those areas show that rate hikes anywhere from 41 percent to 83 percent are needed.

By contrast, the models used by Citizens show that residential wind-only customers in some other coastal counties such as Bay, Duval, Escambia, Nassau, Okaloosa, and Walton do not need to pay more than they do now.

Commercial residential policyholders with wind-only coverage would see their rates go up by a statewide average of 8.2 percent, while commercial residential policyholders with multi-peril policies would have a 9.4 percent average hike.

But these numbers could change depending on what Citizens' officials ultimately decide.

Right now, there is a suggestion to keep rates flat in any location that actuarial charts show supports a rate decrease, while capping at 10 percent those locations whose justified rates exceed the limit imposed by state lawmakers.

There is nothing specific in the newly passed law that could stop Citizens' officials from raising rates across the state by the full 10 percent, but any rate filing by Citizens must pass muster with the Florida Office of Insurance Regulation. The office has 45 days after rates are filed to issue a final decision. By law, Citizens cannot challenge the final determination of state regulators.

The state signed off on rate hikes for Citizens back in 2006. But Ed Domansky, a spokesman for Insurance Commissioner Kevin McCarty, said that any rate hike given to regulators will have to be sound and justified by the numbers in order for it to obtain final approval.

Water Loss Claims Mounting

While Citizens is moving ahead with a rate filing to shore up its finances, the insurer is also pushing ahead with an investigation into mounting non-catastrophe losses associated with water damage, most of it related to plumbing damage or leaks.

An initial report shows that since 2006 water losses have outpaced all other non-hurricane or tropical-storm related claims. About 69 percent of these water loss claims in 2008 came in just three counties: Palm Beach, Broward, and Miami-Dade.

The report has prompted Citizens to direct a special investigations unit to look for possible indications of fraud, but the trend also may prompt the carrier to make other modifications in the months ahead.

Citizens, for example, may introduce a flooring sub-limit on claims losses or put in place a deductible for some structures that have certain risks for water loss claims.

Citizens is also moving ahead with signing a contract to get access to an industry database that would show past claims so that the Citizens could make sure that it was not paying for old damage or duplicate claims.