Senate Passes Bill to Relieve Home Insurers

The following article was published in the Bradenton Herald on April 29,2011:

Florida Senate Passes Bill to Relieve Home Insurers

By Janet Zink

esponding to cries from the insurance industry that fraudulent and frivolous sinkhole claims are draining their coffers, the Florida Senate voted Thursday in favor of a sweeping proposal that would free them from a requirement to provide comprehensive sinkhole coverage.

Instead, they would have to offer coverage only in cases of massive ground collapse. That represents about 1 percent of sinkhole claims.

Under the bill, state-run Citizens Property Insurance Corp. would be the only insurer in Florida required to offer full sinkhole coverage, a provision that flies in the face of the desire of some lawmakers and Gov. Rick Scott to shrink Citizens, which is the state’s largest insurer with 1.3 million policy holders.

Bill sponsor Sen. Garrett Richter, R-Naples, said Citizens was intended to be the state’s insurer of last resort, and that’s what it would be for people who need sinkhole coverage.

But Richter’s bill also would allow insurance companies to charge as much as they want for sinkhole policies. Opponents say some property owners will be unable to afford sinkhole coverage that some banks require.

“This is an economic disaster waiting to happen,” said Sen. Mike Fasano, R-New Port Richey. “There will be more foreclosures.”

Already, State Farm has filed paperwork asking the state Office of Insurance Regulation to give them permission to notify 530,000 policy holders that their comprehensive sinkhole coverage is being removed from their policies and offering them an opportunity to add it back in.

“The filing is on hold pending the outcome of the legislative session,” said State Farm spokesman Michael Grimes.

The Senate passed SB 408 by a vote of 25 to 12.

Richter and his supporters argue the private sector will continue to offer comprehensive sinkhole coverage if they believe it will make them money.

Sen. Mike Bennett, R-Bradenton, said it’s not right for the state to require companies to sell a product and then limit how much they can charge for it through insurance rate review.

“I don’t think that’s the American way. It’s not the capitalist way,” he said.

Sen. Ronda Storms, R-Valrico, characterized the bill as a gift to the insurance industry because it cuts them loose from sinkhole claims so they can boost profits.

“I don’t mind for insurance companies to make a living,” Storms said. “I do mind for them to make a killing. And I think this bill allows for them to make a killing.”

Sen. J.D. Alexander, R-Lake Wales, noted that just as it’s difficult to insure property on naturally vulnerable coastlines, it’s difficult to insure property sitting on a sinkhole-pocked state.

“We all live on top of Swiss cheese that’s below us. There’s a sinkhole sitting beneath every single house in this state,” he said. “As a consequence, there are issues.”

He said requiring coverage only for damage caused by a sinkhole that leads to catastrophic ground collapse is sufficient. As it is now, he said, trial attorneys encourage homeowners to file sinkhole claims for hairline cracks in a driveway, and claimants use payouts for mortgages and other items instead of making repairs. That gets expensive for insurers, who have to pay attorneys fees as well as settle claims, he said.

“You get enough losses in these insurance companies it will eventually perk up in two ways. Either your rates are going to go up, or they’re going to leave,” he said. “A competitive market ultimately will deliver the most cost effective goods and services in the world.”

Richter disagreed with Fasano’s assessment that the bill was one of the most anti-consumer measures of the legislative session.

“This bill is very consumer friendly,” he said. “It attacks cost drivers. It attacks fraud. It promotes competition.”

All of those things, he said, will lower costs for consumers.

A similar bill in the House, HB 803, sponsored by John Wood, R-Winter Haven, also takes steps to reduce sinkhole claims. It still would require insurers to make comprehensive sinkhole coverage available for an additional premium, but coverage would apply only to the principal building. Payments would only have to be made in cases of severe structural damage. The bill also allows insurers to nonrenew existing comprehensive sinkhole policies and offer coverage for catastrophic ground collapse only.

A bill sponsored by Sen. Alan Hays, R-Umatilla, would allow Citizens to increase premiums by up to 25 percent a year, but it is stalled in committees. A House bill, sponsored by Rep. Jim Boyd, R-Bradenton, that would allow the company to raise rates by up to 15 percent is ready for a vote by the full House.

Representatives for Citizens have said their rates aren’t high enough to cover potential losses if a 1-in-100-year storm hits the state. In that case, non-Citizens policy holders would have to pick up the tab through assessments on property and automobile policies. Current statute allows Citizens to increase rates by only 10 percent a year.