Florida's property insurance companies filed for significant rate increases last year, most citing sinkhole claims as their rationale. Homeowners are skeptical that the sinkholes are at the bottom of the issue. The issue made it to the legislature, and the Senate Banking and Insurance Committee released a report this week that is likely to continue, rather than resolve, the controversy.
By way of background, sinkhole claims had traditionally been made in the west-central counties of Hillsborough, Hernando and Pasco. Starting a few years ago, though, homeowners from as far away as Miami-Dade County have filed sinkhole claims. Geologists can find no scientific reason for the change. When claim data revealed that the number of sinkhole claims almost quadrupled from 2006 to 2010, insurance companies asked lawmakers to look into it.
The committee report is based on a survey of 211 private insurance companies. Without the input of any homeowners or policyholder advocates, the committee makes recommendations that are bound to spark debate between the insurance companies and their customers.
Insurance companies have long averred that homeowners are blaming cracks and other damage on sinkholes, rather than chalking it up to the normal aging process. The committee has responded by recommending a clearer definition of what kind of damage can be attributed directly to sinkholes. At the same time, allow insurance companies to limit coverage to homes, excluding driveways, pools and other non-dwelling structures.
The committee recommends that a statute of limitations be put in place for sinkhole claims, cutting off an insured's right to make a claim at two or three years after the damage is discovered. Also, lawmakers should revise the building code to require testing or to institute construction practices that would protect new structures from sinkhole damage.
One of the recommendations would shift the cost burden from insurance companies to the state. A state-run sinkhole repair program would ensure that the damage is repaired -- a response to insurers' complaints that homeowners are taking the payouts but not fixing the problems. Another would cap fees for public adjusters who work on homeowners' property insurance claims, while tightening trade practice rules for the adjusters.
The one recommendation that will most likely be the most controversial is that insurance companies be allowed not to renew homeowners who make a sinkhole claim. (Nonrenewal is not the same as cancellation. Nonrenewal occurs at coverage end date stated on the policy. Cancellation occurs immediately, and is only invoked under circumstances like, for example, making a fraudulent claim.)
A representative of the Florida Association of Public Insurance Adjusters commented that the report gives more weight to the concerns of insurance companies than it does to the legislators' constituents. Florida consumer interests, he said, should come first.
Resource: Sun Sentinel "Report: Florida's Sinkhole Laws Need to Protect Insurance Firms While Still Covering Homeowners" 01/05/11