Choice could save big -- or cost you

Opt in? Opt out? The stakes are high for homeowners.

By DAVID DECAMP, Times Staff Writer
Published September 2, 2007

Are you in or out?

Every homeowner in Pascoand Hernando counties will have to answer that question in the coming months as sinkhole coverage becomes optional on homeowners insurance policies.

Drop the coverage and you could see big savings. But you could someday find yourself on the hook for big repairs.

Why is sinkhole insurance changing?

In recent years, insurance claims for sinkhole damages spiked mostly in Pasco and Hernando counties. Insurers blamed it for causing higher premiums.

In January, lawmakers changed state law to allow insurers to make sinkhole coverage optional. Consumers who drop it are supposed to receive lower bills.

But there's a tradeoff: Without sinkhole coverage, severe cracking and settled foundations are not covered. Claims will be paid only on "catastrophic" collapses that make a home unlivable and condemned by a government agency -- a very rare occurrence.

Given the frequency of sinkholes in west-central Florida, consumer advocates urge customers to think hard before dropping coverage.

When does sinkhole coverage become optional?

For new Citizens Property Insurance Corp. policies, the change went into effect Saturday. For people with existing Citizens homeowners policies, decision time will be when the policy comes up for renewal after Oct. 1.

Private insurers also will be able to offer the change, including State Farm, the No. 2 insurer in Pasco and Hernando counties.

Citizens customers who want to drop sinkhole coverage can do so now, by canceling their existing policy and having a new one written without sinkhole coverage. So can State Farm customers, spokesman Chris Neal said.

How much will I save?

That depends on your home -- for Citizens customers it has to be a house. Condominiums and mobile homes are not eligible to opt out.

Citizens government relations director Christine Turner said Pasco customers on average can save 50 percent -- more if they live near the coast, where claims have been higher.

In Hernando, Turner said, the savings will average 40 percent.

State Farm, the largest insurer after Citizens, offers similar reductions, Neal said.

How do I know if sinkhole activity is a problem where I live?

That's the tough question -- and a reason consumer advocates warn against dropping coverage without a lot of thought.

People who do sinkhole-related repairs to homes recommend several ways to find signs. If homeowners suspects a problem, they can call their insurance agency, company or an adjuster.

Big warning signs are foundations that slope and severe cracks in masonry. More subtle signals are cracks that seem to be growing, or doors that no longer fit frames. However, those signs are not outright proof of sinkholes.

Homebuyers or owners should also check public records. See if previous owners had work done by checking the real estate sales record in the Clerk of Courts official records. Or look up the property's history with the Property Appraiser's Office. If the value of the home suddenly dropped before it was sold, that could indicate a previous owner discovered a sinkhole.

What do I do to keep sinkhole coverage?

When the policy comes up for renewal, Citizens customers must fill out a form to keep sinkhole coverage. They also must sign a related form about the sinkhole and claim history of the property.

Citizens customers who do not opt to keep the sinkhole coverage will lose it.

State Farm customers, on the other hand, will automatically keep sinkhole coverage unless they indicate on renewal forms they're dropping it. The lower premium is on the forms.

But I want to drop it!

Pasco and Hernando customers' policies under Citizens will automatically drop sinkhole coverage when they come up for renewal. Talk to your agent if you want to drop that coverage.

If you go without sinkhole coverage, your policy documents will state in bold letters the policy includes coverage only for catastrophic collapses.

Before dropping the sinkhole coverage, it's a good idea to contact your mortgage holder. Many larger institutions have not objected to dropping sinkhole coverage, but some locally based lenders want homeowners to keep it.

Is there a way to keep sinkhole coverage and save a little money?

Citizens is offering sinkhole coverage with a 10 percent deductible. It means the customer can shave a little off their bill, but keep some coverage. (State Farm does not offer this option.)

But that 10 percent deductible is not a fraction of the repair cost. It's 10 percent of the value of the property insured. So a $200,000 house would have a $20,000 deductible.

Sinkhole repair companies say average repairs can cost $60,000 to $70,000.

How do I get coverage back if I drop it this year?

Sinkhole coverage under Citizens can be added back only when a policy renews each year. State Farm customers don't have to wait until the annual renewal date.

A customer who wants to add sinkhole coverage must fill out forms detailing claims history and sinkhole occurrences.

Citizens and State Farm also can require inspections of the homes. Citizens will pay for those, Turner said.

State Farm will pay for the inspection if a customer is adding sinkhole coverage just one year after dropping it, Neal said. For longer lapses, however, the customer must pay for the inspection.

That's an important concern because of the high costs of geotechnical testing for sinkhole activity. Engineer George Shinn, president of Central Florida Testing Laboratories in Clearwater, said an accurate assessment can run several thousand dollars.

State Farm is considering other testing methods that could lower costs, Neal said.