Senator Garrett Richter: Florida needs solvent insurance system amid a ‘sinkhole crisis’

Feb 25, 2011

The following article was published in the Fort Myers News-Press on February 25, 2011:

Guest Opinion:  Florida needs solvent insurance system amid a “sinkhole crisis”

By Garrett Richter

Last year, the Florida Legislature crafted, debated and passed SB 2044 and sent it to the governor for signature.

The bill was intended to strengthen the insurance market, attract more competition and reduce rampant fraud.

Despite strong recommendations from the Office of Insurance Regulation Director Kevin McCarty, Citizens Property Insurance Corporation Chairman James Malone and the Executive Director and Chief Investment Officer of the State Board of Administration Ash Williams, Gov. Crist chose to veto the bill.

His reasoning for the veto was flawed and inaccurate.

We also identified another significant challenge to a solvent property insurance market and that was excessive sinkhole claims.

Staff conducted an investigation and prepared an exhaustive interim report on sinkhole claims that proved to be very revealing.

In January, the report was presented to the public and to committee members, putting a face on this significant and undeniable problem facing our state.

You would think with the absence of a major hurricane catastrophe for the past five years insurance companies would be able to build surplus for claims. Not the case.
Sinkhole claims have unexpectedly and mysteriously quadrupled over this time period.

In Hernando County alone, one private insurer reported sinkhole premium income of approximately $133,000 and sinkhole claims of more than $2.3 million. That means for each dollar of sinkhole premium collected, they paid out $17 in claims.

Not a good recipe for success and not a good situation for Floridians. “Hurricane Sinkhole” is a Category five disaster, and we have to address it.

Many claims were prompted by unscrupulous public adjustors and policyholders looking for cash payments.

Huge insurance payments were not used to repair damages, resulting in a significant decline in property values. This is not good for Floridians.

As a result and in addition to the good provisions in last year’s bill, the Florida Senate is addressing the sinkhole crisis in Florida. SB 408 is a collaborative effort among regulators, insurers and consumer advocates.

It will strengthen the marketplace by requiring insurers to maintain higher levels of capital surplus. It closes loopholes that invite fraudulent claims by restricting misleading advertising and misleading solicitations.

It attacks cost drivers by permitting insurers to initially pay actual cash value on claims, and as repairs are made, pay the full replacement cash value.

Florida needs an insurance industry that is solvent and on which policyholders can rely.

Our state needs to attract capital to increase the number of insurers writing insurance so that we can get out of the state-owned insurance business, also known as Citizens Property Insurance Corporation.

SB 408 is intended to promote these objectives. It will strengthen the market, and it responsibly addresses cost drivers and closes loopholes that promote fraud.

The most expensive policy any Floridian can purchase is a policy with a company that is insolvent and unable to pay claims.

I look forward to passing this bill and sending it to Gov. Scott for his signature so Florida can avoid policy induced catastrophes.

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