Florida Insurance Department to Survey on Sinkholes

Starting this month, the Florida Office of Insurance Regulation is going to begin surveying Florida property insurers about their experience with sinkhole claims, in an effort to get to the bottom of the simmering controversy over whether there really are more sinkholes in the Sunshine State these days.

Property insurance premiums in Florida have been rising. After being held in check by the Office of Insurance Regulation in 2008, since January 2009, 140 insurers have been allowed to raise their rates, in some cases by more than 30 percent.

At the same time, the number of sinkhole claims being made appear to be rising in a dramatic fashion. Citizens Property Insurance Corp., the state’s second largest multi-peril home insurer, told a state Senate committee during a hearing on the sinkhole issue that the number of claims being made to the company has more than doubled since 2005. Citizens has also said it took in $19.6 million in sinkhole premiums in 2009, but incurred sinkhole claim-related costs of $97 million.

Even Insurance Commissioner Kevin McCarty has said that a large reason for Florida’s escalating property insurance premiums is sinkhole claims.

But is Florida’s karst landscape really crumbling underfoot at a greater rate than in the past?

Many think not.

“It is kind of surprising because you wouldn’t think that all of a sudden we would be getting a bunch of sinkhole claims,” said Jack McDermott, a spokesperson for the Office of Insurance Regulation. “It is kind of an odd development. Our inclination is to think that geologically there is no more activity than there has been in the past.”

Michael Mosher, who is a sinkhole repair specialist and who works in the region around Tampa known as ‘Sinkhole Alley,’ said he thinks the frequency of claims has more to do with increased awareness than geologic activity. He said many attorneys and public adjustors have discovered that pursuing sinkhole claims can be a lucrative endeavor, and they are making sure the public knows it too.

Moreover, many people who live in Florida are people who have moved down from up North and they do not understand that houses in Florida often develop small cracks, he said.

“I believe there are more claims now, but they are due to greater awareness,” said Mosher, of Champion Foundation Repair Services.

Just investigating possible claims is very expensive, notes Sam Miller, executive vice president of the Florida Insurance Council. Hiring a qualified engineer and having them out to a property to investigate whether there is a sinkhole underneath can cost $8,000 to $10,000. And then they may find there is no sinkhole.

“The vast majority of these claims, you examine the home and you can’t see anything – minor cracks in a bedroom or garage,” he said.

On the other hand, there is sinkhole activity in Florida and sometimes it is dramatic and sometimes it does increase. More houses are being built in Florida, so more houses might be on unstable land. When a house is found to be sitting on a sinkhole and its foundation is in danger, concrete has to be pumped into the hole to fill it and that process can cost $200,000.

Houses, schools and roads have fallen into sinkholes. In July, a sinkhole that opened under the parking lot of a condominium complex in a north-Tampa suburb swallowed an entire car.

This winter, freezing temperatures around Plant City caused strawberry farmers to pump out so much groundwater, which they spray on the crop to prevent frost damage, that the groundwater table was reduced by about 60 feet. According to reports, at least 80 sinkholes opened in the area, and 20 home were left uninhabitable.

The worst area for sinkholes in Florida—the Sinkhole Alley—is the three county area of Citrus, Pasco, and Hernando counties, around Tampa. Since 2007, insurance companies writing policies in those counties have been permitted to take out sinkhole coverage from the basic plans, unless the sinkhole damage is severe enough to render the house uninhabitable.

But that is not likely to solve the risk problem for the insurance companies. Geologically, Sinkhole Alley actually extends up into the Florida Panhandle, and all of Florida has the potential for sinkholes.

“We’re hearing anecdotal reports [from insurance companies] that we’re getting a lot of claims outside of South Florida,” McDermott said.

McDermott said that the survey is going to be sent to all insurance companies writing homeowner policies in Florida, about 200 insurers. They will be given 15 days to respond. The survey data should be available publically in October or November.

Depending on what the survey finds, the insurance office may propose that the legislature take action to help insurers, McDermott said.

The Florida Insurance Council would like to see a law that to qualify for a sinkhole claim a house has to have foundation damage, Miller said.

“We’re still paying out millions and millions of dollars,” he said. “We’re starting to see sinkhole claims where we have never had them before.”