Florida’s Citizens Says Sinkhole Claims Require Rate Hike

At a hearing before the Florida Office of Insurance Regulation, Citizens Property Insurance Corp. officials blamed sinkholes as the major reason the public insurer needs a rate increase.

Testifying at the public hearing in Tallahassee, Paul Palumbo, senior vice president for underwriting, said Citizens took in $19.6 million for sinkhole coverage in 2009. But the company paid out $97 million in claims.

Citizens is asking for an average rate increase of 8.4 percent. The average increase being asked for policies that cover homes, condominiums, mobile homes and vacation or rental homes is 9.3 percent. The rate increases would vary quite a bit depending on the area, however. Some areas would have a decrease, while in others the increase could be as high as 11 percent.

The rising cost of sinkhole coverage in Florida has hit all home property insurers. Last month, Insurance Commissioner Kevin McCarty announced that his office is surveying carriers about claims to get a better idea about why, suddenly, Florida insurers are paying so much more for sinkholes.

Some say the reason is that the public has learned about sinkholes, and people have begun making claims for any cracks they see in their homes. Investigating possible sinkhole damage, which an insurer is required to do, can cost tens of thousands of dollars.

At the hearing, Palumbo said there has never been a catastrophic claim for sinkhole damage in Citizens history. The claims have been for cracks in driveways and other relatively minor, possible damages.

He also noted that many of the claims are coming from areas outside of the region near Tampa Bay that has historically had the majority of sinkhole problems, the so-called “sinkhole alley” of Pasco and Hernando counties. According to Citizens, there have been about 300 claims made in the Miami area since the start of 2008.

Lynne McChristian, Florida representative of the Insurance Information Institute, said that the fact that Citizens is having a sinkhole problem is not a shock. But the extent of its problem is striking.

“It is rather surprising and it has a lot to do with the fact that the burden for investigating whether damage is caused by a sinkhole is borne by the insurer, and those investigations can be quite expensive,” she said.

The Institute thinks language in current statutes that defines what sinkhole damage is, for insurance purposes, is too vague. “What is missing from the statute is a definition of ‘structural damage’,” she said. “The absence of that definition has given rise to policyholders who consider any visible, cosmetic damage to come from sinkholes, rather than normal settling.”

Citizens is Florida’s largest residential home insurer, with about 1.2 million policies.

The Office of Insurance Regulation has 45 days to review the rate increase request.

Michael Mosher, a sinkhole repair specialist and who works in the region around Tampa known as Sinkhole Alley, said he thinks the frequency of sinkhole claims has more to do with increased awareness than geologic activity. He said many attorneys and public adjustors have discovered that sinkhole claims can be lucrative and they are making sure the public knows it, too.

Moreover, many people who live in Florida have moved down from up north and they do not understand that houses in Florida often develop small cracks, he said.

“I believe there are more claims now, but they are due to greater awareness,” said Mosher, of Champion Foundation Repair Services.

Just investigating claims is very expensive, notes Sam Miller, executive vice president of the Florida Insurance Council. Sending a qualified engineer out to a property to investigate whether there is a sinkhole underneath can cost $8,000 to $10,000. Then the expert may find there is no sinkhole.

“The vast majority of these claims, you examine the home and you can’t see anything – minor cracks in a bedroom or garage,” Miller said.

Topics Florida Carriers Claims Pricing Trends