As Fla. Sinkhole Costs Hit $1.4 Billion in 2006-2010, Group Head Calls Situation ‘Crisis’

Sinkhole claims more than tripled in Florida between 2006 and 2009, and the number of claims this year is on track to exceed last year, with costs totaling approximately $1.4 billion over the past five years, according to a study by the Florida Office of Insurance Regulation.

The report found sinkhole claims jumped to 7,244 last year from 2,360 in 2006, the first year the OIR asked for data. So far this year, insurers reported close to 6,700 sinkhole claims.

"This is a crisis," said Sam Miller, executive vice president of the Florida Insurance Council, adding that sinkhole claims are the major reason why insurance rates are going up in the state.

Miller said the vast majority of sinkhole claims involve cracks in driveways, garages, or windows not closing properly – not gaping holes in the ground that swallow cars.

Sinkhole costs surged to $406 million last year, up from $209 million in 2006.

The OIR reported that 66% of claims are concentrated in three counties – Hernando, Pasco and Hillsborough. However, there is an increase in reported sinkholes in parts of south Florida, including Miami-Dade and Broward counties, where sinkholes historically haven't been an issue.

Of the total claims reported, only in about 20% of cases were insurance companies aware of repairs being initiated, the report said.

Under Florida law, there is no obligation to fix damage, said Lynne McChristian, Florida representative of the Insurance Information Institute.

More than 200 insurance companies responded to the OIR's data call request. One company, HomeWise Preferred Insurance Co., noted it conducted an examination of 110 sinkhole claims, 55 with policyholders having representation, and another 55 nonrepresented policyholders.

"Reported data involving HomeWise Preferred indicates that policyholders tend to not effectuate repairs, with the percentage opting not to make repairs being higher for claims with representation," the OIR report said. Of those having representation, 79% of claimants did not make repairs, and 58% paid down their mortgages or transferred the property. Of those nonrepresented claimants, 56% didn't make repairs, and 40% paid down their mortgages or transferred the property, the OIR report said.

McChristian said the OIR study provides "a good handle on extent of the (sinkhole claims) problem."

Both McChristian and Miller said a legislative fix is needed -- with a definition of structural damage caused by sinkholes based on sound engineering principles.

"If the definition is met, then we would pay insurance claims," Miller said. "If it's not met, we wouldn't."

Citizens Property Insurance Corp. has said sinkholes account for a major portion of the state-run insurer's noncatastrophic exposure. Last year, Citizens collected $19.6 million in premiums for sinkhole coverage but paid out $97 million in claims (BestWire, Oct. 11, 2010).

The top five writers in the Florida homeowners multiperil market in 2009 were State Farm Group, with a 15.09% market share; Citizens, with 13.44%; Universal Insurance Holdings Group, with 8.62%; USAA Group, with 5.9%; and St. Johns Insurance Co. Inc., with 4.59%, according to BestLink, which provides online access to A.M. Best Co.'sGlobal Insurance & Banking Database.

(By Diana Rosenberg, senior associate editor, BestWeek)