Tallahassee, FL - A state-run insurance pool, stricter regulations on public insurance adjusters and shifting the burden of proof on claims are among the options posed by Senate committee for curbing sinkhole claims that have tripled since 2006.
Setting the stage for a hearing next week and possible action later this month, the Senate Banking and Insurance Committee this week released an interim report on sinkhole insurance claims, which the industry says have cost insurers $1.6 billion since 2006, an increase fuelled in part, insurers say, by questionable claims from property owners who pocket the cash instead of doing repairs.
Echoing concerns raised by the industry and the Office of Insurance Regulation, the 47-page report will give fodder to those who say homeowners are using loopholes and ambiguities in state insurance rules and the law to pay off mortgages and raise cash with claims for damage that may not be sinkhole related.
“A major driving force for the significant increase in sinkhole claims is the fact that many policyholders are incentivized to file such claims because they can keep the cash proceeds from the claim instead of effectuating repairs to their home or remediating the land,” the report concluded.
According to the report, total claims increased from 2,360 in 2006 to 6,694 in 2010, totaling 24,671 claims throughout that period. Total sinkhole claim costs amounted to about $1.4 billion during that time.
In 2009, Citizens Property Insurance Corp., the state-created insurer, incurred over $84 million in sinkhole losses plus adjustment expenses, yet obtained only $19.6 million in earned premium to cover those costs.
Industry officials hailed the report as verification of what they have been saying for the past several years: Sinkhole claims in a handful of counties are costing all property owners millions in higher premiums and in many cases, the claims are questionable at best.
“It documents what we have been saying,” said Sam Miller, executive director of the Florida Insurance Council. “It verifies the concerns that Insurance Commissioner (Kevin) McCarty raised before the Cabinet and we raised before the Cabinet. It helps make the point that somebody is paying for this and that ‘someone’ is everyone in Florida.”
The Senate report called for:
- Changing the burden of proof in court cases to make policyholders prove damage was done by sinkhole, rather than having companies prove it wasn’t.
- Establishing a two- or three-year statute of limitations on filing claims. Currently, there is no statute of limitations.
- Requiring claims payments to be used on repairs
- Making sinkhole coverage optional as long as insurers provide policies for catastrophic ground collapse
- Revising the Florida Building Code to require pre-construction testing, thicker foundations and added reinforcements to prevent settling
- Create a statewide sinkhole pool to which private insurers could cede coverage.
Not everyone applauded the report. Again a target of critics, public adjusters said the committee report overlooks recent decreases in claims and would single out sinkhole policyholders by requiring that they put their claim payments toward repairs, a restriction not levied against other insurance policyholders.
“Unfortunately, the Committee staff recommendations on sinkhole insurance promote legislation that would unquestionably harm consumers,” said David Beasley, president of the Florida Association of Public Insurance Adjusters. “While the recommendations for changes in the Florida Building Code have merit, the report as a whole lends great weight to insurance company interests at the expense of Florida homeowners.”
The Senate Banking and Insurance Committee is scheduled to be briefed on the report at its meeting next week and include sinkhole provisions in a wide ranging insurance bill to be rolled out two or three weeks later, committee chairman Garrett Richter, R-Naples, told the New Service of Florida Wednesday.
Richter said he favors a lot of the report’s recommendations on statutory changes but has yet to be convinced that the state should go into the sinkhole insurance business by setting up a state-run program to handle sinkhole claims.
“I don’t think a facility is the way we should go initially,” Richter said. “I think we should see if the private market can take care of this. If that doesn’t work, then we can go further.”