Sun Sentinel House Keys Blog: Should Florida create a fourth state insurance program?

Oct 22, 2010

Should Florida create a fourth state-run insurance entity to cover sinkhole risks?

Floridians already pay fees on their insurance policies to support state-backed Citizens Property Insurance, the Florida Hurricane Catastrophe Fund and the Florida Insurance Guaranty Association, which handles claims for insolvent insurers.

The idea of creating a state sinkhole “facility” was floated Thursday at an Office of Insurance Regulation symposium in Orlando on the state’s property insurance crisis.

Insurance Commissioner Kevin McCarty said the event, featuring mostly insurance industry officials, will help his office draft recommendations for state leaders on improving the affordability and availability of property insurance.

McCarty and insurance company executives said premiums aren’t keeping pace with expenses for many insurers because of backup coverage costs and a dramatic increase in claims costs, including expenses for sinkhole claims. Citizens collected $19.6 million in premiums specifically for sinkhole coverage in 2009 but paid out $97 million in sinkhole claims and expenses. Most of the sinkhole claims were for minor cracks in walls and driveways, according to the state-backed insurer.

John Auer, president of American Strategic Insurance in St. Petersburg, said a government program covering sinkholes is “by far the best way to go.”

“I know a lot of other companies feel similarly,” Auer said, adding that sinkholes are hard for insurers to cover because of the disagreement among architects and engineers about what is a sinkhole or not.

Auer also said that sinkhole costs are so high that they “could take some companies down before the rate can catch up with it.”

Missy Shelley, an actuary for Florida Farm Bureau insurance, said she doesn’t oppose the idea of having the government take on sinkholes but “analysis needs to be done to make sure we know what we’re getting into.”

Speakers did not discuss the details and whether the program would only be funded by people who buy sinkhole coverage or subsidized by other Florida residents.

More than 100 people attended the event, according to Ray Spudeck, an OIR consultant who organized it. Speakers including representatives and agents for major reinsurance and insurance companies and a blast from the past: Bob Ricker, who resigned as Citizens’ executive director in 2006 for personal reasons. The resignation came after Citizens weathered eight hurricanes, criticism for operational problems and allegations of bribery against a top company official.

Ricker, an insurance consultant in Tallahassee, had planned to help with a no-bid Citizens contract that drew criticism, according to the St. Petersburg Times.

Find this article at: