They Say, Hearsay
"We had sinkhole damage and, thankfully, had the proper insurance to cover the repairs. So, now I'm thinking of dropping optional sinkhole coverage since the damage has been done and it's unlikely to reoccur. But everyone I talk to about opting out of comprehensive sinkhole coverage gives me a different answer. Whom should I believe? My agent, who thinks I should continue purchasing optional sinkhole coverage, the geology report that tells me everything is now rock solid, or my neighbors, who say the odds are against repeat sinkhole damage? I need a straight answer."
We Say
Isn't the definition of a "straight answer" one that aligns with the answer you want? A straight answer is often a simple one, which is difficult to come by with the complexities of sinkhole insurance in Florida. In addition to being the No. 1 target in the United States for hurricanes, Florida is also No. 1 for developing sinkholes, particularly along the central western Gulf Coast. Sinkholes are also common in Texas, Alabama, Missouri, Kentucky, Tennessee, and Pennsylvania. Florida, however, ranks first place in the land's search for bedrock.
Essentially, here's the real question this homeowner was asking: If she already experienced sinkhole damage, what were the odds that another sinkhole would form? The straight answer she craved was really a guarantee, and such a guarantee would have to come from Mother Nature. The geologist who surveyed and tested her property, the structural engineers and contractors who did the work, and the agent who handled her claim may each guarantee their work related to the damage from that particular sinkhole, but there could be a next time — unlikely, yet possible. Living on limestone, as we do in Florida, makes sinkholes happen. Predicting when, where, and if they will occur has not been possible.
People want guarantees. We naturally seek reassurances and want to hear the words "always" and "never." Absent that, a substitute for insurers is to explain "why or why not," which we must proactively strive to include in our conversations with policyholders. Simply telling this policyholder why she received multiple answers in her quest for a guarantee would have been enough to help her realize she had all the information needed in order to make an informed decision. Without a "why" explanation, she felt she was getting the runaround.
Sinkholes are natural systems and, as such, may come without warning. Also, there is no guarantee that a repaired sinkhole will not be subject to additional geological factors related to population growth, weather-related impacts, or changes in water flow and usage. A sinkhole repair certified by a licensed engineer makes the home safe and satisfies the insurer's requirements. Hopefully, that's the end of the story. But what if…?
According to the Florida Geological Survey (FGS), we have no sinkhole-free zone within our state borders. The FGS further notes that the general geographic distribution of sinkhole activity has remained fairly consistent over time, while the frequency and severity of sinkhole claims have increased. (Data, maps, and other relevant materials are available at www.dep.state.fl.us/geology.)
The increase in sinkhole claims and the high cost of investigating and repairing sinkhole damage have created challenges for insurers and policyholders alike. Optional sinkhole coverage was made available in 1969, but few people bought it. As an alternative to sinkhole insurance, the Legislature in 2007 created a statute (F.S. 627.706) requiring every property insurer to include coverage for "catastrophic ground cover collapse," defined as abrupt collapse of the ground that causes a home to be considered uninhabitable by the appropriate governmental agency. Coverage for all other types of sinkhole losses required a separate endorsement.
This year the Legislature passed SB 742, which becomes law Jan. 1, 2010. It allows insurers to non-renew policies that include comprehensive sinkhole coverage in Pasco and Hernando counties (among the sinkhole-prone regions of Tampa Bay), then offer policyholders the opportunity to repurchase the coverage as an endorsement. The change means customers in Pasco and Hernando counties can rethink their coverage, and they will be asking us if the odds of sinkhole damage have changed. Well, they have not; however, the thought is that the two counties have local ordinances designed to reduce the effects of sinkhole damage, and SB 742 included a grading schedule to see if the ordinances work. A geologist at the University of South Florida estimates that there is a 1-in-100 chance a property in Tampa Bay will experience a sinkhole in any given year. A policyholder should know those odds as part of the straight answers we provide.
Lynne McChristian is the Florida representative for the Insurance Information Institute. She may be contacted at 813-480-6446, lynnem@iii.org. Also, see www.InsuringFlorida.org for her insurance blog, "Straight Talk."
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