Tag Archives: Sinkholes

Sinkholes and Insurance

It was hard to miss the recent Florida story of a sinkhole fatality. This tragic event made news headlines in part because  fatalities due to sinkholes are  such a rare occurrence.

The story also prompted questions about sinkholes and insurance coverage.

Over at Straight Talk, the Insuring Florida blog, a post by Lynne McChristian explains that Florida has a sinkhole law requiring every property insurer to provide coverage for “catastrophic ground cover collapse†.

This is defined as:

1. Abrupt collapse of the ground cover,
2. A depression in the ground cover clearly visible to the naked eye,
3. Structural damage to the insured building, including the foundation, and
4. The insured structure being condemned and ordered vacated by the governmental agency authorized to do so.

However, a separate  optional comprehensive sinkhole policy is needed to cover any other type of sinkhole damage.

Florida is one of only two states that require home insurers to offer sinkhole coverage. The other is Tennessee.  In other states most homeowners insurance policies exclude coverage for sinkhole damage.

The Insuring Florida blog has  further background info on sinkhole insurance here.

More  info on sinkhole claims  is in  the I.I.I. facts+stats on homeowners and renters insurance.

Florida’s Sinkhole Claims: The Numbers

The problem of sinkholes in Florida is increasing, both in terms of frequency and cost, according to a new report from the state’s Office of Insurance Regulation (OIR).

OIR’s study puts numbers around a problem that’s been making the headlines as many property insurers in Florida have sought approval for rate increases, citing a surge in non-catastrophe losses – read sinkhole claims.

So what do the numbers tell us? OIR requested information on all sinkhole claims occurring in Florida between 2006 and 2010.

It found that total sinkhole costs over the sample period amounted to approximately $1.4 billion and increased from $209 million in 2006 to $406 million in 2009.

Of the total claims reported, 66 percent are concentrated in Hernando, Pasco and Hillsborough counties –known sinkhole hotspots. But Miami-Dade and Broward counties – where sinkholes have traditionally not been an issue – have seen a 4.2 percent increase in claims so far in 2010.

A key takeaway from the OIR report is that just one percent of the claims were catastrophic ground cover collapse sinkholes, while nearly 57 percent were allocated to subsidence.

Still, insurers are paying out more than $140,000 for the average sinkhole claim, regardless of whether its due to catastrophic ground collapse or subsidence.

As I.I.I. Florida representative Lynne McChristian comments in her Straight Talk blog: “All I can say is†¦what??!!†

McChristian highlights another key finding from the report –  while insurers are paying sinkhole claims,  only 20 percent of claimants actually have repairs made:

So, 80 percent make an insurance claim for sinkhole damage, do not make repairs (because repair work is optional) and do what with the money? Some pay off their mortgage; others may just take the money and stay – or take the money and run.†

Bottom line:

Insurers paid a total of $406 million for Florida sinkhole claims in 2009. True, that amount pales in relation to the billions paid out following a hurricane. But when insurers talk about non-catastrophe losses rising, now you know what they mean.”

We couldn’t have put it any better.

Check out the I.I.I. Florida website for more on the issue of sinkholes.