Last week I submitted this Letter to the Editor to the St. Petersburg Times in response to their editorial titled, “Don’t let insurers walk away from sinkholes,” on April 29, 2011. To date, it has not been published, so here it is in it’s entirety. Thank you for your continued interest and following of this high-profile issue affecting our state.
Your editorial regarding the major property insurance bill that passed overwhelmingly in the Florida Senate this week was correct in declaring, “the status quo in sinkhole coverage is unsustainable.” Yet you failed to say what the bill actually requires in terms of sinkhole coverage, and you mischaracterized the legislation as “anti-consumer,” when in fact it does several things to help consumers.
How can your editorial writers on one hand acknowledge there is a problem with the explosion of sinkhole claims being filed in Florida, yet on the other hand call sinkholes “the new excuse” that insurers are using “to seek big breaks” from the Legislature? Between 2006 and 2009, sinkhole claims skyrocketed 375 percent in Hernando County, 187 percent in Pasco County and 384 percent in Hillsborough County, absent any significant geological changes. Do you think that claims surge has anything to do with the cottage industry of public insurance adjusters, trial lawyers and “remediation specialists” who are advertising on the major roadways in Tampa Bay and are reaping tens of millions of dollars annually from claims filed over what are most often minor settling cracks in homes, driveways and pool decks?
In reality, Senate Bill 408 continues to require homeowners’ insurers to offer coverage for catastrophic ground coverage collapse – in other words, a real sinkhole that causes structural damage to a home. The bill says insurers “may” offer more comprehensive sinkhole coverage beyond that. Many insurance industry experts believe that private insurers will step forward and offer that optional sinkhole coverage – if they are allowed by state regulators to price it appropriately.
It’s worth noting that a Senate staff report on sinkholes surveyed insurers about their sinkhole claims and found that many homeowners who received claims payments did not use the money to fix their homes. One insurer reviewed 55 closed claims and found that in instances where the homeowner was represented by a public insurance adjuster or attorney, 79 percent of the homes were not repaired – in most instances, the homeowner used the claims proceeds to pay off their mortgage. Another insurer found that out of 53 sinkhole claims it paid out, only five homeowners used claims payouts to complete repairs to their properties. If these homeowners were truly concerned about a sinkhole under their home, wouldn’t they use the money to fix it rather than to pay off a loan, buy a new car, or invest in a new bass boat?
When homeowners file sinkhole claims and then use claims payments they receive for something else, it hurts their property values and their neighbors’, erodes local property tax revenues, and increases the costs of property insurance for everyone else. How is a bill “anti-consumer” when it address those very real problems?
Your editorial also mischaracterizes as “mischief” a provision in the bill that would allow insurers to make claims payments to homeowners and contractors as repairs are made to a home and belongings are replaced, rather than to pay the full replacement cost up front. This provision is designed to discourage fraud and questionable claims and to encourage that homeowners actually make repairs and replace property when there is a partial loss to a home – which is exactly what the purpose of insurance indemnification is. Insurance was never intended to be used as a cash windfall.
Under this provision, no homeowner will have to pay out of pocket or max out his or her credit cards for repairs to begin, as critics have contended. That is a complete fabrication. In fact, paying the homeowner actual cash value up front is more than sufficient to fully cover the deposit required by licensed contractors. As repairs are made, the insurer then pays the full replacement cost.
As an insurance agent and a former chairman of the Florida House Insurance Committee, I know that eliminating unnecessary cost drivers in our state’s property insurance market is good for consumers and good public policy. Senate Bill 408 is good for homeowners who pay premiums and good for taxpayers. It deserves the strong support of homeowners.
