What’s Next: The Florida Sinkhole Insurance Fund?

Will Floridians, who already support a state-backed property insurer and a catastrophe fund, support another public insurance entity for sinkhole coverage?

Such a fund might be the “best way to go,” according to John Auer, president of domestic insurer American Strategic Insurance. Auer said he likes the idea because it would “quantify the problem” of runaway sinkhole claims that are costing insurers millions and “could take some companies out.”

“I know a lot of other companies feel similarly,” Auer said.

The sinkhole fund concept, which has been recommended in two academic studies as a possible solution to rising claims, was among the ideas bandied about during a special symposium in Orlando. The symposium was organized by the Office of Insurance Regulation (OIR) and Insurance Commissioner Kevin McCarty to bring together industry representatives and policymakers on ideas for improving the state’s property insurance market.

Actuary Missy Shelley of Florida Farm Bureau, another domestic insurer, cautioned that before the state launches any new sinkhole facility “an analysis needs to be done so we know what we are getting into.”

Speakers noted that the system is not only vulnerable to major storms; it is also being buffeted by non-catastrophic losses from sinkholes and reopened claims. Reinsurance broker Guy Carpenter’s Kevin Stokes told attendees that Florida’s non-hurricane losses are up 65 percent since 2007. He said two-thirds of the state’s 55 domestic insurers are losing money.

Citizens Property Insurance has had to pay almost $100 million in sinkhole claims. The state’s cat fund needed an additional $700 million in bonds five years after the Hurricane Wilma to cover reopened claims.

Insurance agent John Gardner, Lee County Insurance Agency, said the sinkhole crisis is affecting availability of coverage even in counties where sinkholes are not prevalent.

Jack Nicholson, director of the Florida Hurricane Catastrophe Fund, said he is frustrated because state law does not prevent public adjusters and attorneys from escalating and reopening claims.

McCarty and the speakers said they hope for a consensus on what might be done to get at cost drivers and attract more capital. McCarty, lawmakers and the industry had reached a consensus on some of these same issues with an omnibus bill, SB2044, in the spring. Gov. Charlie Crist, however, vetoed that bill over the advice of McCarty and the industry.