TALLAHASSEE, Fla. -

Homeowners covered by Citizens Property Insurance Corp. will see an average rate increase of 6.3 percent next year.

The increase, approved Monday by the Office of Insurance Regulation, is down from a 7.9 percent hike requested on the combined personal-lines and coastal accounts. Citizens officials previously said a 7.9 percent increase wouldn't be enough to cover the projected costs for next year.

The increase doesn't include sinkhole coverage.

The hike also comes as up to 400,000 Citizens policyholders will be told in the next month that they will have to decide if they want to remain with the state-backed insurer or be shifted to private carriers.

"We are grateful to OIR for its diligence in reviewing Citizens' 2014 rates and pleased that it has agreed with our overall approach," Citizens President and CEO Barry Gilway said in an email. "The agency’s action will allow Citizens to continue providing quality service to our 1.2 million policyholders while reducing the risk of assessments on all Floridians."

The state-backed company had 1.22 million policies as of July 31.

The increase will be a bigger hit on those with coastal accounts.

The approved hike is 4.4 percent on average for personal-line accounts, down from the 7.3 percent that had been requested in July. Coastal, wind-only accounts will go up 10.5 percent, which is more than the requested 9.8 percent.

Non-residential commercial-line accounts are going up 10 percent, the rate requested by the Citizens board.

The increases are expected to generate less than $200 million for Citizens in the next year, while actuarial numbers have estimated that $505 million is needed in additional premium charges.

For single-family coverage, the average non-sinkhole rate will stand at $2,106 next year, up from $1,981 in the current year.

All rates vary upon location.

Before the rate increases go into place in January and February, about 400,000 Citizens residential customers will have to decide if they will remain with Citizens or agree to be covered by one of 10 private insurance companies that were approved two weeks ago for a massive takeout program.

Those policyholders, with what are expected to be the least-risky policies, will have to decide by the first week of November.

Letters will be sent to the impacted policyholders by Oct. 5.

Citizens estimates that 30 percent to 35 percent will remain with the state-backed insurer when the initial offer is made.

The private carriers must agree not to change the terms of policies until it is time for policies to be renewed.

Customers would have the option to return to Citizens or remain with the private companies after the renewal rate is offered.

Gov. Rick Scott offered his support for the downsizing effort Monday, saying, "Citizens needs to go back to becoming the insurance company of last resort."

Meanwhile, Sen. Tom Lee, R-Brandon, wrote Gilway on Monday to request that additional warnings be clearly placed on the takeout offers.

"Consumers should be provided clear details on the differences between the current Citizens policy and the policy of the takeout insurer," Lee wrote. "Many policyholders who elect to accept private market insurance also likely do not fully understand that returning to Citizens can be a complex and difficult process."