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Finding a way around sinkholes

Sinkhole coverage has raised rates. A plan seeks to make it optional.

By DAVID DeCAMP
Published November 20, 2006

NEW PORT RICHEY - Marguerite Clarke gets by each month on $600 from Social Security and $100 in food stamps.

But her homeowners insurance has ballooned from $500 a few years ago to at least $2,100 next year - all for the 1,000-square-foot stucco block home that she maintains herself despite a decade-old spinal injury. "Those of us who live on a fixed income can't afford that," said Clarke, 65.

She has hope, though: State-run Citizens Property Insurance Corp., Clarke's insurer, wants to drop sinkhole coverage from standard policies. Homeowners who want it would have to pay extra. With state approval, Pasco residents would save up to 56 percent by dropping the coverage that has driven up rates.

But some mortgage lenders might not let their customers go without sinkhole coverage - meaning some Citizens customers may not reap savings.

More than 81,000 of Pasco's 141,000 owner-occupied homes have mortgages, according to 2005 Census estimates.

"What they're doing is putting the risk on the property owner. But they're not taking into account the risk to the lender," said Steve Zahorian, chairman and chief executive of Patriot Bank in Trinity.

If people don't buy sinkhole coverage, their Citizens insurance would only cover catastrophic collapses. Because of the risk of lesser sinkhole damage to the home - the collateral for the mortgage - lenders probably won't allow homeowners to drop sinkhole coverage, Zahorian said.

But the option to drop sinkhole coverage could go beyond Citizens, and some banking and political leaders are less reluctant than Zahorian.

State Sen. Mike Fasano and state Rep. John Legg said they want to pass a bill making it clear that private insurers can make sinkhole coverage optional, too. They say doing so would remove a big reason why insurers are dropping coverage in Pasco, sinkhole central in a Tampa Bay region churning out most of Florida's sinkhole claims.

In fact, some banking officials predict the bigger lenders may be less opposed to letting homeowners drop sinkhole coverage.

Small lenders such as Patriot probably are more aware of the local sinkhole risks, but larger banks like Wells Fargo have so many loans that their risk is spread broadly, said Greg Hallam, president of the Mortgage Bankers Association of Florida.

In fact, one clerk might review 1,000 to 2,000 files, he said, leaving scant time to deal with a localized issue like sinkhole coverage.

"They may not pay attention to that detail," said Hallam, regional vice president of First Florida Bank in Naples.

However, the Florida Bankers Association, a lobbying group, believes the idea will be a top priority, but it is still researching how it will affect banks, spokesman Bret Rock said.

A report for the state in September by Deloitte Consulting found 95 percent of claims and 98 percent of loss payouts from Citizens from 2004 to 2006 came from four counties: Pasco, Hernando, Pinellas and Hillsborough, in that order.

Citizens raised rates up to 139 percent in Pasco, and private insurers have followed course - or stopped writing policies. Even with sinkhole coverage savings, Citizens is proposing more steep increases statewide.

That's what Clarke, a retiree living mostly on Social Security disability payments, fears.

She got a mortgage in 1995 to buy her home with a single-car garage. Records show it cost her $45,000.

Since then, she replaced her windows and added storm shutters. Aside from the time her porch roof caved in, causing a $5,000 insurance claim, she had been doing fine there. "I tried to do everything I could to protect my home, but the rates are still up," Clarke said.

But this year, her daughter paid her $500 tax bill because things were so tight.

With most sinkholes she knows of miles away, she smiled on the idea of cutting sinkhole coverage and paring down her bill. And when she said she called mortgage-holder Wachovia-owned World Savings on Friday, they told her she would be okay without sinkhole coverage.

A Wachovia spokeswoman did not respond when asked if Florida mortgage customers would be allowed to drop sinkhole coverage.

Insurers most likely will support the option. Dropping sinkhole coverage could cut down claims. Claims on cracked patios and walls would not be covered.

"The vast majority of the claims don't involve anything but cracks in the foundation," said Sam Miller, executive vice president of the Florida Insurance Council, an insurer lobby.

He said it's tough to disprove that lesser damage is caused by sinkholes. So he saw no reason why insurers would not support making sinkhole coverage optional.

- 139 Highest percent that Citizens Property Insurance has raised insurance rates in Pasco

- 56 Highest percent that Pasco residents could save by dropping sinkhole coverage from their policies

- 81,000 Amount of local owner-occupied homes that have mortgages

- 95 Percent of Citizens claims (2004-06) from Pasco, Hernando, Pinellas and Hillsborough counties

- 98 Percent of Citizens loss payouts (2004-06) to Pasco, Hernando, Pinellas and Hillsborough counties

[Last modified November 19, 2006, 22:55:06]