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New Florida Insurance Law - Citizens is proposing outrageous rate increases for sink hole coverage!

By
Real Estate Agent

The new sinkhole insurance law is a disaster for Florida homeowners and buyers in sinkhole prone areas. The increased rates will make it impossible for many people to stay here or move here - especially folks on fixed and limited incomes. The new law removes the 10% cap that limited the amount that insurers could raise rates for sinkhole coverage.  In areas commonly known as "sinkhole alley", Citizens proposed rate increase is over 2,000 percent for Tampa, from $156 per year to $3,651 per year.  In Pasco County, the rates will increase from $1,475 to $4,440 per year, an increase of 201 percent.  Increases for Hernando County will be from $1,004 to $6,192, an increase of 471 percent.  The rate hikes still must be approved by the Office of Insurance Regulation in Tallahassee.  

These outrageous rate increases will adversely impact the monthly cost of owning a home making it out of reach for many. The banks will qualify even less people for mortgages due to the higher property insurance rates (along with higher mortgage insurance and flood insurance by the way). These factors increase a buyers housing expense ratio (monthly housing expenses divided by monthly gross income) potentially knocking them out of the game. Many just cannot afford it.

Under the new law, insurance companies will be denying the vast majority of sinkhole claims unless it is catastrophic and uninhabitable with severe "structural" damage, as opposed to the prior definition of "physical" damage.  Catastrophic collapses account for only about 1% of sinkhole claims.  So what's a homeowner to do when they're claim is denied and their home is slowly deteriorating?  If they do submit a claim, the home is forever labeled in property records as a sinkhole home and the homeowner has the obligation to disclose this fact to potential buyers.  And, if the home goes unrepaired, it loses more than half its value. So what will a homeowner do if they can't sell it and don’t have an extra $100K laying around to repair the home themselves?  They very well may end up walking away and making it the banks problem.  Another abandoned foreclosure and/or damaged property. Our fragile real estate market and local economy can't handle this additional blow. Think about it - even less home buyers qualifying for mortgages, more struggling homeowners forced into foreclosure because of higher ownership costs, more abandoned and damaged properties, further erosion of home values.  Aren’t legislators biting off their noses to spite their face? Aren't they going to end up getting more of what they're trying to avoid?  They say they want to elimintate fraud yet there hasn't been one arrest due to Fraud.  How can someone fake a sinkhole anyway when it is the insurance company who sends out their geologist and inspection team to make the sink hole determination.  If it is determined there is sinkhole activity and related damage, the insurance company sends the homeowner a check.  Under the prior law, if there was a mortgage on the property the homeowner could pay it off and then decide what to do with the balance of the proceeds. Some chose to stay in their home and repair it, while some decided to move on.  Shouldn't they have that choice?  The new law takes that choice away and forces the homeowner to fix the home and paying for the work as it is completed.  Would you want to be forced to stay in a home that was so damaged it was uninhabitable?  Pumping grout in under a house, the most common recommendation for repair, is not proven to last and only typically has a five year warranty.  A homeowner may just not want to stay in this house. 

Another concern, is why is there such an increase in sinkhole claims anyway?  Well, part of it is simply due to population growth and increased urban sprawl.  Developers hungry for business, are getting approval to build on areas that were once swamps and mucky land and, oh yeah, riddled with sinkholes.  Should they have been allowed to build homes there to begin with?  Should there be changes to building codes to shore up foundations when homes are built, similar to the requirement for waterfront homes to be built on stilts?  Also, we have had long term draught conditions in Florida which adds to the problem.  Many communities have dug wells to water lawns which disturbs the aquifer leading to instability.  Perhaps there should be a state or national fund available for sinkhole damage and they should be categorized as what they really are - natural disasters. 

Anyway, this new insurance law will also lead to less tax revenues due to decreases in assessed values, less buyers moving into the area and abandoned and damaged homes.  Just what legislators should be trying to avoid.  So, who are our legislators really working for anyway?  Are they trying to protect their constituents, the homeowner, or are they stuffing the pockets of the insurance companies who will be collecting lots of new revenues, but not paying them out? 

I think there has to be a better way than shuffling this problem down the line leaving the homeowner holding the bag, don't you?

Hearings will be held throughout the state before the Office of Insurance makes a ruling on the Citizens rate hikes.  On September 13th there will be a public hearing in Tampa at the Convention Center.  If you are outraged by these increases, please plan on attending.  We must let our voices be heard.

Comments (2)

Olympus Executive Realty Inc.
Olympus Executive Realty INC. - Orlando, FL
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Aug 31, 2011 03:32 PM
Anonymous
Steve V

Hi Lisa,

I agree with your blog. The real problem is insurance companies doing everything possible to treat their policyholders like criminals. Sinkholes are often occur doing do to farming activities. They are real events that happen to real people. Even though big business insurance wants to blame it all on fraud. The true fruad is what the insurance lobby has done to Florida law.

Sep 10, 2012 01:34 AM
#2