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In a special report issued recently in the St. Pete Times, it appears that while insurers struggle to retain control over underwriting rights in Florida, to their delight, Florida’s legislature has dramatically changed state law on sinkhole insurance. Such a change is supposed to reduce homeowners rates for consumers and eliminate many loss exposures for carriers.
That’s the good news. The bad news? Florida homeowners will shoulder more of the risk.
After struggling with the sinkhole issue for the past two years, both houses are nearing an agreement to make sinkhole coverage, a standard coverage in most policies, an optional purchase. In addition, under the proposed change, basic sinkhole coverage would only apply when a catastrophic collapse leaves a home unlivable.
Of course, that leaves Pasco, Hernando and west-central Florida homeowners with a difficult choice. Either pay a jacked-up insurance premium that could be as much as 500% of normal, or face the risk of sinkhole without the protection of insurance.
An Easy Decision?
The decision becomes easier for Pasco and Hernando homeowners where dropping sinkhole coverage could reduce premiums by 45 to 58 percent. Other areas, like Hillsborough and northern Pinellas counties would experience similar, although smaller, cuts.
Unfortunately, if homeowners do decide to buy such coverage, they may pay even more than they do now. Therefore it leaves one wondering, just how much risk does one really face?
Few Homes Actually Collapse
Geologists claim that the sinkhole risk is highest in the west central Florida area because of the thin layers limestone and soil lying over Florida’s aquifers, and, over the past five years insurers have actually doubled and tripled, citing the high rate of claims in this area.
The fact is, few if any sinkholes in west-central Florida have actually destroyed homes. Instead, foundations have settled and walls have cracked, resulting in claims for remediation techniques such as grouting and underpinning, which can typically run as high as $75,000 for a rather minor repair job.
Insurers have indicated that most of the claims being paid are really not for legitimate sinkholes. Unfortunately, these same insurers have been forced to pay many of these claims because court fights have become far too expensive, and are often unsuccessful, even when sinkholes are not proved to be at fault for the damage.
Some of the recommended changes encompass some tough standards, including limiting coverage to house collapses that occur within seven days or less. With coverage restrictions like this, homeowners who have damaged foundations or walls that do not collapse, or collapse over a period of weeks or months, may find themselves footing the bill themselves.
Pasco County the Worst
The worst hit area by far is Pasco, where more than 30% of homeowners are insured by Citizens Property Insurance Corp. In 2002 Citizens had only 9 sinkhole claims. By 2004 that number had risen to a high of 809. In 2006, sixty-two percent of its 747 claims came from Pasco County, costing the company more than $27 million in claims, remediation and legal expense.
Legislators indicate that private insurers like State Farm would be more interested in writing homeowners policies in these counties if they could avoid the sinkhole risk. It’s not a guarantee, though, and could still depend on how higher profile changes to Florida’s
insurance law turns out this year.
Claims and Payouts for 2006
Sinkhole claims and losses for 2006 by county are as follows:
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