A new law meant to reduce fraud and abuse with sinkhole claims is having unintended results. Last spring, Florida lawmakers voted to approve Senate Bill 408, which made several changes to definitions of "structural damage" and "losses" in regard to sinkholes and allowed insurers more freedom to increase premium rates for such damage.
Essentially, insurers may provide coverage for sinkhole claims when a home meets one the following requirements:
- Unfit for habitation
- No longer provides intended structural support
- Is listing, leaning or buckling out of plumb
- Significantly likely to collapse due to movement or instability
- Is damaged under the new building code definition of "substantial structural damage"
Prior to this change, what would constitute a loss was largely undefined, especially when it came to sinkholes. While this type of damage is common in Florida, many insurers would dispute whether damage was related to natural settling of land, instead of actual sinkholes. In fact, insurer USAA used this ambiguity to its advantage, and applied a very narrow definition of "sinkhole losses" in denying hundreds of claims, even when internal investigations indicate that sinkhole activity is impacting the property.
It appears that Citizens Property Insurance Corporation is using the new law to protect its financial interests and reduce its risk of losses. It recently applied to increase sinkhole premium rates by over 400 percent. This move was ostensibly made to recover more than $200 million in losses it incurred from sinkhole claims in 2010.
According to a report by Sunshine State News, homeowners residing in western Central Florida, otherwise known as "sinkhole alley", may see a dramatic increase in sinkhole premiums. Policyholders in coastal Pasco County may see annual rates jump from $1,270 to $3,598-a 183 percent increase. Inland homeowners would see a 200 percent increase, from $1,475 to $4,440 per year. In coastal Hernando County, rates would climb from $1,356 to $5,734 (a 320 percent increase), and in the interior of the county, a 471 percent jump.
Naturally, legislators were not pleased with Citzens' request, especially when they voted to abolish the 10 percent cap on rate increases. They fear that these hikes would be an economic disaster for unsuspecting homeowners.
The Office of Insurance Regulation has 45 days to address Citizens' request. If it is approved, some lawmakers will request a special session to prevent the changes.
