CITIZENS SINKHOLES…Problem Solved?

Except for the possibility of writing about the killing lawyers make off of frivolous sinkhole claims, I promise this to be my last word on this frustrating subject.   Besides, the issue of what rate would be approved for Citizens sinkhole activity coverage was always just a red herring–a distraction from the meaningful solutions already taking effect.

That’s right, raising sinkhole rates was the right thing to do, but… just like increasing rates wouldn’t solve the problems, having the request substantially reduced doesn’t mean the problems aren’t solved.

You see, exempting Citizens sinkhole rates from the 10% glide path was never seen as a reason for sinkhole alley consumers, currently spending thousands to purchase the coverage, to stop buying the coverage.  It was SB-408’s remaining reforms that do that. With the exception of the  exasperating “tail” issues, those reforms effectively address Citizens sinkhole problems going forward and they remain remarkably unscathed by either the media or cottage industry adversaries distracted by the 2000% proposed increase.

Ironic isn’t it, that Senator Fasano and Sean Shaw won a lower price but will still have fewer purchasing the coverage down the road.  And…their hard won victory makes it even harder to win repeal of  SB-408  because the other sinkhole reforms that were “…not fully taken into account” by Citizens, provided the prime justification for OIR’s reduction of the request. Oops!

Soon sinkhole activity coverage will be dramatically less available and, when available, dramatically fewer will elect to buy it–especially residents of sinkhole alley whose only option is Citizens.

Here are some bullets on why this is true:

  •  The increase finally approved is a statewide average. Citizens sinkhole rate will still rise much more in sinkhole alley where only 20% purchase the coverage today.  And, it won’t even be available to those who don’t pass a pre-coverage inspection. Just like the majority of carriers, Citizens policyholders with pre-existing damage (settlement cracks, stucco damage, etc) will no longer be able to buy the coverage at any price; from Citizens or anywhere else!
  • Senator Fasano testified at the hearing that US Bank was an “example” of a mortgage company requiring sinkhole activity coverage.  False!  US Bank is the only one requiring sinkhole activity coverage and other banks will not be joining them. Unlike the rumor, neither Fannie Mae or Freddie Mac or any other bank require the purchase of sinkhole activity coverage.  If they did, 80% of Citizens sinkhole alley policyholders could not be without it.
  • SB-408 will dramatically reduce the involvement of public adjusters as protagonists in filing sinkhole claims. Remember, with Citizens, PA’s can only collect a percentage of the difference between the final payment and what Citizens originally offered. Without the incentive of a big payout PA’s will put less and less pressure on policyholders to file frivolous or inflated claims and policyholders will be even less willing to pay the higher premiums for the coverage.
  • Coverage no longer exists for sidewalks, driveways and patios. This, along with a new, more stringent definition of sinkhole damage, will reduce the potential for unjust enrichment by Citizens policyholders.
  • And, most likely to have a profound impact, is the provision in  SB-408 specifically requiring the homeowner to spend any sinkhole claim payment on repairs.  This means no more mortgage pay-offs and summer vacations.  In fact, no unjust enrichment for the policyholder and no money to pay a public adjuster means no reason to file a false or inflated claim at all; and that means no reason to buy the coverage when you’ve already got catastrophic collapse at no additional charge.

Keep in mind Senator Fasano’s response to the letter from Hernando County Property Appraiser, Alvin Mazourek, who lamented that the county’s tax base had eroded nearly 50%.  Senator Fasano wrote…

 “…I agree with your assertion that insurance monies set aside for sinkhole home repairs should be spent on those repairs and not diverted for other purposes. Sinkhole homes left unrepaired do nothing but cause economic damage in the form of dangerous dwellings, homes that probably won’t ever sell and homes that are not sinkhole residences but are unfortunate enough to be near an unrepaired sinkhole home.”

CAUTION: this last bullet is only effective IF Citizens immediately implements a hold-back or other payment methodology that insures the claimant spends the money on repairs. The statute does not restrict Citizens ability to hold-back payment or to make the claim check payable jointly to the named insured and the repair facility.

Citizens should move expeditiously to implement procedures that guarantee sinkhole claimants comply with the new law which includes advising applicants for the coverage that they acknowledge they will have to spend claim payments entirely on repairs.

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