Editorial: More favors with no strings

May 13, 2011

The following article was published in the Palm Beach Post on May 13, 2011:

More Favors with No Strings

This year’s property insurance bill from the Legislature is another favor for the insurance industry.

Though hurricanes, as always, were an issue, the big new issue this year was sinkholes – the industry’s latest explanation for why rates are going up even though Florida has gone through five uneventful hurricane seasons. At one point, the Legislature was set to free companies from paying sinkhole claims unless a home was destroyed.

Ultimately, SB 408 keeps sinkholes as part of a homeowner policy’s covered perils, but companies don’t have to cover damage to garages and pools. Also, home­owners who file sinkhole claims will have to pay 50 percent of the cost for testing if the test determines that a sinkhole did not cause the damage.

Why, you might ask, don’t companies simply refuse to pay all of those costly and supposedly bogus sinkhole claims? Sam Miller, director of the Florida Insurance Council, argues that the current system is stacked in favor of the claimant because of court decisions that gave the benefit of the doubt to the engineer hired by the homeowner. If the insurer refuses to pay, Mr. Miller said, the home­owner can file a lawsuit alleging bad faith by the insurers for failing to follow the terms of the policy.

Every previous favor for the industry, however, has not resulted in lower rates. The big new favor this year was basically doing away with discounts for homeowners who had strengthened their homes against storms, by installing shutters, wind-resistant windows and new roofs, and by reinforcing garage doors. Homeowners must put up more money for damages, then hope that they can recover it, or that the company doesn’t play tricks with a home’s value.

These measures are designed to reduce what insurers call rampant fraud. Some changes make sense, such as reducing from five years to three years the deadline for filing hurricane claims. Certainly, the state should try to prevent homeowners from filing claims strictly to get cash, not to make repairs. But SB 408 does not require companies to turn these favors into lower rates. And while the Legislature didn’t allow 25 percent rate increases for Citizens Property Insurance Corp., insurers got a 15 percent premium increase for unregulated reinsurance on top of their regular increase.

Florida’s property insurance crisis will remain until the Legislature realizes that there is no free-market solution. That realization hasn’t sunk in yet.

– Randy Schultz,

for The Palm Beach Post Editorial Board