Catastrophic Sinkhole Coverage and the Problems of the New 2009 Florida Legislation
"Cheaper" insurance rates often mean far less coverage. In this world, you often get what you pay for. If there is ever a lesson to be learned about that, just ask those that live in the "Sinkhole Capital of the World," Pasco County, Florida. They can elect to get "Catastrophic Sinkhole Coverage" as ordinary coverage or get "Sinkhole Coverage" which is every bit as catastrophic where it counts--the ability to get back to where you started from--but covers damage from a slow moving sinkhole. The latter optional coverage is very expensive and covers Floridians from loss caused by most of the sinkholes that occur. The other coverage, which is much less costly, covers only very quick and substantial collapse sinkholes which happen once in a gazillion years to the properties owned by anybody. Guess which form the insurance industry wants to insure? BINGO!
I fought against this new option. I felt people would opt out of coverage mandated by their mortgages as well as avoid the exposure to the most probable loss in areas close to Tampa. I thought "cheap" versus "safe" was bad public policy. I lost.
Well, complaints about the new law are starting to filter in as indicated in this letter to the editor:
"Sinkhole plan didn't work out
Did our elected officials really think mortgage companies would not catch on about the automatic dropping of sinkhole coverage? The if-they-don't-ask, don't-tell-them suggestion that Sen. Mike Fasano made at a meeting at the Spartan Manor was not going to work for long.
While I was president of HAC (Having Affordable Coverage) I strongly warned people the new legislation to automatically drop sinkhole coverage was risky and that when the mortgage companies figured it out the coverage would be required. We already knew of local banks that were requiring it, but it is only a matter of time before they all will require it. It is after all a peril that can destroy your home and cost tens of thousands of dollars to repair.
Well the proof just came in the form of a letter from U.S. Bank Mortgage Co. to a mortgage holder. The letter reads in short that the homeowner who had his sinkhole insurance automatically dropped from his insurance company is required to maintain his coverage or it will be forced.
The letter states:
"We understand from speaking with many insurance agents located in Florida that catastrophic ground collapse has been added to these policies in lieu of sinkhole coverage. However, our research has indicated major differences between these two perils. A sinkhole is the systematic weakening of the land supporting your home. If damage attributed to a sinkhole were to occur to your home, your property could still be deemed livable by your local authorities.
"A catastrophic collapse is a geological activity that results in all of the following conditions: 1) an abrupt collapse of the ground cover, 2) a depression in the ground cover visible to the naked eye, 3) structural damage to the building, including the foundation, and 4) the insured structure must be condemned and ordered vacated by a government agency. While we understand the financial burden caused by the current insurance situation in the state of Florida, we are required to ensure your home is covered in the event of damage. Sinkhole damage not only causes significant damage, but the repair costs are very high. Without sinkhole coverage, a homeowner would have to bear the burden of the cost to repair the property while maintaining their monthly mortgage payment.''
Now, what shall I tell this man who has Citizens Insurance, lives in Pasco County where no other insurance companies are writing and cannot afford to add the sinkhole policy back? Not to mention now to add the insurance back you will have to have a sinkhole evaluation at your cost. So much for our elected officials working to help lower our insurance!
Virginia Stevans, New Port Richey"
It will get worse as people incur uninsured losses and everybody asks why the risk of such loss was not spread across Florida. Eventually, these losses will result in lowered property values, lowered tax base, lowered appeal to live in the community, lowered expectation of property appreciation and a lowered economic opportunity in the Pasco community. In my view, Pasco County has doomed itself in the long run by passage of a law that lowers their insurance premiums in the short run versus building recovery in the long run. This letter is just the start.
Why would all Floridians choose to subsidize those that choose to live in sinkhole prone areas. The same applies to those who choose to live in hurricane prone areas. Why should insurers or taxpayers foot the bill for those choosing to live where loss is almost a certainty.
Faulting insurers for choosing to charge for risk is absurd. If those folks that think that it's an obligation to provide cheap insurance to folks who choose to live where risk is high then start a cooperative insurance company and see how long you stay in business.
Nice to complain about big bad insurers but try it, you won't like it.
Hey, you used my line. :) This is just all so depressing - most people in this bleak economy are already up to their ears with bad news and it just keeps piling on them....WILL IT EVER END?
SHIRLEY HEFLIN
It will be interesting to see if advocates for policy changes can maintain a logical consistency in their arguments. Those with sinkhole exposures want others who don't to share their risk. Those near the coast want those inland to share their risk. City drivers think it's unfair that their auto rates are higher than rural drivers.
How do they feel about health insurance for children with autism and others who aren't welcome in society's risk pool through no action of their own?
Insurance Veteran,
I think John Nixon commented on the issue of social risk discrimination in a manner that most have to either accept or decline. Some would say that if you have a child with autism or some other ailment, that you should pay for insurance rates that may bankrupt you. Many health carriers would simply refuse to accept such individuals into the health insurance pool if it were not for laws preventing it.
Similarly, property insurers, if allowed, would try to rate every physical risk so there would be little social aspect of a very social product. Geographic redlining based on peril probability is becoming the norm for property insurance rather than pooling of levels of risks.
There is a social aspect to insurance, don't you agree?
And I do not hate big insurance companies. I make my living from them!
I agree there is a social aspect to insurance, and in setting legislative priorities for risk sharing, I think we should start with the risks that are beyond the control of the individual.
I take issue with the politicians in catastrophe prone areas that demand insurers cover all and spread the risk to reduce their premiums, but in the next breath take the position that healthcare reform is evil, and that it would destroy small businesses to mandate elimination of coverage exclusions for autism.
I guess that's why I'm in property insurance and not politics.
I think to attribute a social obligation to a company in business to make a profit is a bit pie in the sky.
Why hold insurers to a different standard than other businesses in pursuit of a dollar?
Let's make all lawyers do pro bono and give free consultations while we're at it.If you choose(And yes there is a choice) to live in a catastrophe prone area I for one do not want to subsidize your choice, nor do I suspect do most folks.
Veteran,
I could argue with you. But, this would be stupid. I am going to study the issue further and think about what you have to say---you make some very good points.
When I or others come back with support of your views or against, please reflect hard if you, in your heart, may have learned otherwise.
WHY NOW THE CHANGE
INSURANCE LOBBY ?
I am looking for insurance companies quotes. Is Citizen the only company in Pasco, Florida?
What is catastrophic collapse versus sink holes.
Who makes the Decisions?
Audrey,
You will be hard pressed to find an insurer other than Citizens in Pasco County. If your property is in Pasco, I would definitely recommend paying extra to expand your coverage from catastrophic collapse to include all manner of sinkhole activity.
I live in Pasco county and I'm currently in the process of renewing my homeowner's policy. My current company essentially non-renewed my policy and issued a new policy that excludes Sinkhole coverage.
I'm going to request an inspection, but according to my broker he has never seen anyone in Pasco county get approved for Comprehensive sinkhole coverage from 2 other companies that have been writing Sinkhole coverage as a seperate add-on policy for the past couple of years. My company just began this new program at the beginning of the year, and they have promised to be more "lenient" in their approval process. I'm hoping this is the case.
I have no problem paying extra for the coverage. However, if my company does not approve this coverage, I don't think I really have any other options. The couple of other companies that do offer comprehensive sinkhole coverage only offer it to existing policy holders. So, switching companies would not do me any good. I have not looked into Citizens yet, but I know that the rates are quite a bit higher and they do not have a good reputation for paying claims.
I work in the insurance industry and I do not think that Sinkhole coverage should be mandated. I understand that this may make the cost of the policy prohibitive for some and therefore the option to drop this coverage would allow them to still have other protection. However, I do not think that the Insurers should be allowed to drop the coverage. Perhaps they should offer a policy and show both premium rates, with Sinkhole coverage and without and let the policy holders decide if it is worth paying for the coverage.
To answer some people above, I know of at least four companies besides Citizens that are currently writing Homeowner's insurance in Pasco county.
Many of us don't live in Pasco County, but are in areas that have recently been shown to have very active sinkhole issues. Most did not know about the problem of sinkholes when they first purchased their homes and only now in the past few years have these issues come to light. If you think for one second that if this bill passes there won't be more to come you are dead wrong.
Once insurance companies see that they are able to get away with dropping coverages that cost them money they won't be able to wait to start dropping more of those coverages.
Pretty soon homeowner's insurance will be nothing more than a piece of paper that doesn't cover squat and we'll all be the ones writing checks for those meaningless pieces of paper, so go ahead and bend over now.
Well, as of today Citizens has announced that our rate will go from $175 for sink hole to $3825..yes that is right! More than 2000% increase. Did I mention I live near downtown Tampa, in Hillsborough County, in an 80 year old home? No sinkholes near us but we get to pay for everyone else. No, it is not an option we can "out" of as we have a mortgage with US Bank that is requiring it. We bought within our means, in a safe, inland area and now we will probably lose the house as the extra $500 a month in insurance, for a total of $6526 a year, is too much for us to hang on any longer.