Letter From Tallahassee: Things Aren’t So Sunny

by Christian R. Camara on August 11, 2011

photo by Foxtongue/Flickr, used under a Creative Commons license

Greetings from Florida, where things aren’t always so sunny.

Such is the case for many Central-Florida residents who may see some dramatic spikes in their property insurance premiums—and for once, it’s not because of hurricane risk. Instead, it is for sink hole coverage, the cost of which is about to increase for customers of the state-run Citizens Property Insurance Corporation by an average of about 400 percent statewide.

But, many of you reading this might ask yourselves, “I haven’t really seen any news coverage of a bunch of houses falling into sink holes in Florida.” This is true. There has been no noticeable geological changes in Florida. Despite this fact, claims for sink hole losses have dramatically increased over the past few years, hitting close to $1 billion in claims filed against Citizens alone in the past 9 years.  In fact, last year, Citizens paid out nearly $250 million in claims while only collecting a little over $30 million in sink hole premium. Essentially, Florida doesn’t have a sink hole problem, but rather an insurance claims problem.

Of course, there are cases where people have legitimate damage due to possible sink holes or other geological activity, but many of the claims have been largely instigated by unscrupulous attorneys and public adjusters who profit from filing claims (and suits) against insurance companies for ordinary damage, including a crack in a driveway, which they claim is due to sink hole activity. Because the geological surveys necessary to disprove the presence of sinkhole activity are so costly, insurance companies oftentimes would rather settle for large sums of money rather than perform the studies or worse, litigate.

Moreover, until recently, Florida law encouraged the filing of frivolous claims because claimants were not required to repair their structures after an insurance payout. Instead, many just treated whatever was left of the insurance payout—after the lawyers and public adjusters got their cut—as a winning lottery ticket to pay off mortgages and buy new toys without repairing  the dwelling or addressing the alleged sink hole (because many times there was not much to repair and no sink hole to address, despite the handsome payouts).

As such, this last legislative session the Legislature took action to rein-in some of these frivolous activities, as well as allow the state-run insurer Citizens to charge actuarial rates in order to have enough to pay for these claims. The result is a dramatic increase in the sink hole coverage portion of its property insurance policies, as well as other provisions that allow private insurance carriers to offer only catastrophic ground cover collapse coverage, as opposed to ill-defined sink hole coverage that can mean anything from a wall crack to more severe structural damage. Critics of these legislative changes are vowing to make an issue of it during next year’s legislative session.

Until next time,

Christian R. Cámara, director of Florida Insurance Project

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