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Sinkholes raise insurance rates, even from a distance

In Pasco and Hernando, sinkhole insurance claims cluster near the coast. But homeowners throughout the counties foot the bill.

By GARRETT THEROLF
Published February 19, 2006

LAND O'LAKES - Terry Fryman's bill for State Farm homeowners insurance went from $1,098 to $2,162 over the past three years, and he figured he knew why. "I thought it was ... the hurricanes," he said.

But it turns out the recent onslaught of storms had little to do with it. Like other residents of Pasco and Hernando counties - whether they're insured by a private company or the state-run Citizens Property Insurance Corp. - Fryman can blame sinkholes.

In fact, sinkhole claims have risen so much in the two counties that many private insurers no longer write policies there, leaving Citizens as a last resort. In the Land O'Lakes area of central Pasco, where Fryman lives, Citizens raised rates by 67 percent in just the past year.

But the sinkhole connection to his insurance bill puzzles Fryman: "There are no sinkholes here," he says.

That's not literally true. Citizens data show 34 sinkhole claims in central and eastern Pasco in the past three years - and 1,174 in west Pasco.

So, it's easy to see why Citizens just raised rates 139 percent in west Pasco. But what explains that 67 percent jump in central Pasco, especially when neighbors just to the south in Hillsborough and Tampa have only a 17 to 29 percent hike?

Fryman and tens of thousands of other Pasco and Hernando residents who live away from the coast are paying a steep price for an arbitrary stroke of an actuary's pen.

Actuaries figure out insurance rates. Immersed in data, they're the last people you'd accuse of being arbitrary.

All around Florida, they have set homeowners insurance rates based on hurricanes. Homes near the coast obviously are at greater risk from high winds and storm surge.

So insurers - public and private - divide counties into two parts. One rate is applied to the narrow stretches along the water where hurricane risk is higher; a lower rate applies to inland sections.

In Pasco and Hernando, Citizens uses U.S. 19 as the dividing line.

The system works fine everywhere in Florida - except Pasco and Hernando. Sinkhole damage in those two counties is the driving force behind insurance claims. Example: Pasco accounts for two-thirds of the $95-million Citizens paid in sinkhole claims statewide. As a corollary, Pasco - where the private homeowners insurance market is drying up - has as many Citizens policyholders as more-populous Pinellas; Hernando has as many as Hillsborough.

"We can't really write (policies) in the area anymore because of the sinkholes," said Sam Miller of the Florida Insurance Council. State Farm, the state's largest insurer, has a yearslong waiting list for new policies in the area, and only a few smaller insurers have moved in to fill part of the gap.

No one knows exactly why so many sinkhole claims are appearing in such a concentrated area, but geologists suggest that the limestone bedrock is closer to the surface and more vulnerable to acid rain and other factors that cause it to break apart.

The actuaries have not caught up to the reality of sinkhole claims, and U.S. 19 remains the dividing line in Pasco and Hernando.

Sinkhole claims cluster near the coast, but many come just to the east of 19. So, a sinkhole in Hudson affects rates 45 miles away in Zephyrhills. The same holds true in Hernando, where most sinkhole claims come from the Spring Hill area but end up affecting rates in Brooksville and Ridge Manor. Interior residents, in other words, are subsidizing rates for those on the coast.

If the dividing line were changed to, say, the Suncoast Parkway, all but roughly 3 percent of Citizens sinkhole claims in both counties would be in the western zone.

"Basically, I had no idea this was the case," Fryman said when given the chance to review the claims data, which mirror the pattern for private companies.

To date, neither Citizens nor any private insurer has adjusted its rating map to reflect sinkhole risk.

"We haven't been able to determine whether we would be allowed to use more concentrated or split-up territories," said Paul Palumbo, Citizens' chief underwriting officer.

Palumbo added that dividing coastal counties according to hurricane risk properly divides the primary risk in every other region of the state.

Said State Farm spokesman Chris Neil: "This whole phenomenon has really only been the last five years or so. Nobody's really investigated the issue."

Local legislators have taken notice.

State Rep. John Legg and state Sen. Mike Fasano are pressing for legislation aimed at reducing the impact sinkholes have on insurance costs. Both represent the western stretch of coastland that is most sinkhole prone and is the beneficiary of the subsidies from eastern neighbors.

As part of the legislative package, Legg said they might soon introduce provisions that would limit what risks can be contained inside rating territories and increase the amount of risks that would have to be equally spread statewide.

"The folks in Miami should pay for the legitimate sinkhole claims in Pasco County," Legg said.

In the meantime, interior residents of the counties are the only ones having to pay more for sinkholes along the coast.

"More' is not even the word for it," said Sandy Nestor of Land O'Lakes, whose Citizens policy just increased from $1,799 to $2,911 for her $223,796 home. "I just about screamed when I saw my bill."

Garrett Therolf can be reached at 1-800-333-7505, ext. 6232. His e-mail address is gtherolf@sptimes.com

[Last modified February 19, 2006, 01:07:06]