Florida's citizens Says Sinkhole Claims Forcing Proposed Rate Hike

By Timothy F. Kirn - Insurance Journal Southeast News - 09/08/2010

At a hearing yesterday before the Florida Office of Insurance Regulation, Citizens Property Insurance Corp. officials blamed sinkholes as the major reason the public insurer needs a rate increase.

Testifying at the public hearing in Tallahassee, Paul Palumbo, a senior vice president for underwriting, said Citizens took in $19.6 million for sinkhole coverage in
2009. But the company paid out $97 million in claims costs.

Citizens is asking for an average rate increase of 8.4 percent. The average increase being asked for policies that cover homes, condominiums, mobile homes and vacation or rental homes is 9.3 percent. The rate increases would vary quite a bit depending on the area, however. Some areas would have a decrease, while in others the increase could be as high as 11 percent, Citizens said.

The rising cost of sinkhole coverage in Florida has hit all home property insurers. Last month, Insurance Commissioner Kevin McCarty announced that the
Office was surveying insurance companies about claims to get a better idea about why, suddenly, Florida insurers are paying so much more in claims costs.

Some say the reason for the raft of claims is that the public has learned about sinkholes, and people have begun making claims for any cracks they see in their
homes. Investigating possible sinkhole damage, which an insurer is required to do, can cost tens of thousands of dollars.

At the hearing, Palumbo said there has never been a catastrophic claim for sinkhole damage in Citizens history. The claims have been for cracks in driveways and other relatively minor, possible damages.

He also noted that many of the claims are coming from areas outside of the region near Tampa Bay that has historically had the majority of sinkhole problems, the so-called "sinkhole alley" of Pasco and Hernando counties. According to Citizens, there have been about 300 claims made in the Miami area since the start of 2008.

Lynne McChristian, florida representative of the Insurance Information Institute, said in a telephone interview that the fact that Citizens is having a sinkhole problem is not a shock. But the extent of its problem is striking.