Homeowners insurance options for sinkhole coverage shrinking

The following article was published in the Plant City Courier & Tribune on April 14, 2011:

Homeowners Insurance Options for Sinkhole Coverage Shrinking

By Ray Reyes

Allan Schwartz wants to make sure he’s covered if the ground collapses. He’s dealt with three insurance companies in two years to get that peace of mind.

“I won’t own a house without sinkhole coverage,” said Schwartz, 62, of New Port Richey.

Nationwide Insurance wanted to raise his rates from $2,000 to $4,000, he said. The HomeWise Insurance Group sent him a letter saying his policy would only be renewed at a higher rate because he lives in an area of Pasco and Hernando counties known as Sinkhole Alley.

So Schwartz said he settled for the state-run Citizens Insurance Property Corp. and pays $2,668 a year for sinkhole coverage. When he first moved to the River Crossing subdivision in 1987, his premium with Allstate was $800 a year, he said.

“I had no choice but to go to Citizens,” Schwartz said. “Nobody’s doing anything about homeowners insurance.”

Claims of sinkhole damage spiking dramatically over the last five years is the main reason why options are shrinking for Florida homeowners. Nearly 25,000 claims costing $1.4 billion were filed from 2006-10, according to a state Office of Insurance Regulation report.

State lawmakers are taking action, but not in ways Schwartz agrees with.

A bill sponsored by state Sen. Garrett Richter, R-Naples, chairman of the Senate Insurance Committee, seeks to eliminate a requirement that insurance carriers offer sinkhole coverage.

The proposal, Senate Bill 408, allows insurers an option to keep offering coverage with additional premiums but won’t make it mandatory to do so.

Supporters say SB 408 will help revitalize the insurance market and prevent carriers from bailing out of Florida. Opponents say the bill does nothing to bail out homeowners threatened by sinkholes.

If the bill becomes law, Citizens Insurance would be a homeowner’s only option, said David Beasley, president of the Florida Association of Insurance Adjusters.

“Some people say other carriers would step up, but there’s no guarantee of that,” Beasley said. “Our industry doesn’t believe that carriers would write that coverage. It would disappear.”

Jack McDermott, spokesman for the state insurance regulation office, declined to comment on his agency’s stance on SB 408.

Under the current law, carriers must offer homeowners an option to purchase sinkhole insurance at additional premiums. All insurance policies must offer coverage for what is deemed “catastrophic ground collapse,” those huge craters that attract curious onlookers and make headlines.

But the sheer number of claims, and the costs to settle them, have drained the capital of private insurers, causing them to hike rates and rewrite policies.

For the first nine months in 2010, there were 6,694 sinkhole claims, according to the state insurance regulation agency. Regulators are still compiling data for October through December.

In 2009, there were 7,245 claims. More than 66 percent of those cases were filed in just Hernando, Pasco and Hillsborough counties.

From 2006-09, Broward and Miami-Dade counties represented 2.9 percent of all claims. That number rose to 4 percent last year and the state insurance office report found this “statistically significant due to the fact that this area is generally not subject to sinkhole activity.”

Industry lobbyists say fraud is rampant, which drives up costs for insurance companies and customers. About 27 percent of policyholders who received funds for sinkhole repairs actually fixed the damage they reported, according to a state Senate study.

Some homeowners pocketed settlement money to pay off mortgages or buy luxury items, the report said.

“Our position is that all those claims filed is for cosmetic damage and not caused by a sinkhole,” said Sam Miller, vice president of the industry-backed Florida Insurance Council.

Consumer advocates say the volume of claims can be attributed to droughts, development and freezes.

Miller said a clear definition of what constitutes sinkhole damage is needed. Beasley, the adjuster association president, agreed.

“There is a flaw in the language and we need to better define what a sinkhole is,” Beasley said. “With sinkholes, there’s various degrees of damage. In most sinkhole claims, there’s just a movement of the ground, a cracking in the drywall or the floor dropping.”

Lawmakers are also considering bills to bolster and recast Citizens to its original role —that of the insurer of last resort for those unable to obtain reasonably price homeowners or wind insurance in private markets.

If SB 408 passes, sinkhole coverage isn’t going away entirely because of Citizens, Miller said.

“Even if private insurers don’t offer it, it’s very clear Citizens will still offer sinkhole coverage,” he said.

Schwartz, the New Port Richey homeowner, said he still wishes he had more options. He doubts any insurance reform would help him or his neighbors.

“If anything, it will benefit the insurance companies,” he said. “And probably next year my premiums will go up.”

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