Sinkhole Insurance Coverage Debate in Florida Contentious

One of the drawbacks to living in Florida is the marshy ground that makes it difficult to ensure that a given piece of land is stable enough to support a building. Sinkhole damage claims to insurance companies have increased in recent years and insurers argue that the staggering number of claims necessitates a drastic rate increase. However, many consumers are outraged by the dramatic rise in premiums.

Citizens Property Insurance Corporation, a state-created insurance company, reported that it paid out $84 million in sinkhole claims and collected only $19 million in premium payments in 2009. The situation worsened for the company in 2010: it paid $245 million in sinkhole claims and received $32 million in premium payments. In an effort to try to recoup some of the money the company has hemorrhaged in recent years, the board proposed a radical premium increase that would raise rates an average of 429 percent state-wide. Some policyholders in areas known to have sinkhole problems like Tampa Bay could see rates skyrocket by as much as 2,000 percent.

By law, Citizens cannot raise their rates by more than 10 percent per year. However, the state legislature recently passed Senate Bill 408, which excludes sinkhole coverage from the rate increase restriction. The new law also contained other provisions that make it more difficult for property owners to collect on sinkhole claims, including a more narrow definition of what a “structural loss” from sinkhole damage is and a two year time limit on filing a sinkhole damage claim. Furthermore, if an insurance company denies a sinkhole damage claim on the grounds that there is not a sinkhole, the policyholder now has to pay up to half the cost, up to $2,500, for sinkhole testing.

The Florida Office of Insurance Regulation will have to approve any rate increase for Citizens and some lawmakers are urging Gov. Rick Scott and state CFO Jeff Atwater to oppose the rate increases. They believe that Citizens is acting in haste by raising rates so severely without letting other protective measures in the bill take effect to decrease the amount that the company pays out in claims.

Critics of the rate increase and of the new law governing sinkhole insurance in general argue that it is anti-consumer and only benefits insurance companies. They claim that it is unfair to punish all property owners with draconian rate increases for sinkhole coverage because a few bad actors were committing insurance fraud. The better way to solve the problem, according to critics, is to investigate individual claimants to make sure they are legitimate.

The debate on the cost of sinkhole coverage in Florida is far from over. It remains to be seen whether Citizens can strike a balance between its need to stop losing so much money and policyholders’ concerns with a potentially huge increase in rates.