Citizens Property Insurance customers facing the threat of huge increases in the cost of sinkhole coverage have a choice:
Pay up — for some that will mean thousands of dollars extra every year.
Or go without it — a roll of the dice in sinkhole prone areas that could easily leave a homeowner on the hook for tens of thousands of dollars or more in damage.
The state-run property insurer has proposed raising its sinkhole rates by 400 percent on average across the state and by more than 2,000 percent in parts of the Tampa Bay area, where 94,400 property owners have Citizens sinkhole coverage.
Insurance experts, real estate agents and mortgage brokers disagreed on whether the added protection is necessary or whether increased premiums will drive down home sales in sinkhole-prone areas.
But one thing is for sure: The choice to purchase sinkhole coverage could soon get a lot more difficult.
Who needs sinkhole coverage the most?
Homeowners in sinkhole-prone areas, including Pasco County, parts of Hernando and Hillsborough counties and northern Pinellas County, insurance experts said.
Overall, nine out of 10 homeowners typically decline sinkhole protection when obtaining mortgages, said Katie Hughes of Prospect Mortgage in Tampa.
Does regular homeowners insurance cover any kind of sinkhole damage?
Yes. Homeowners insurance policies provide coverage for catastrophic ground collapse, said Will Trump of Trump Insurance in Largo. The coverage will not insure cosmetic problems like warped floors or cracks in walls and foundations.
Four conditions, Trump said, must be met to file a catastrophic claim: the abrupt collapse of ground cover; a depression in ground cover must be clearly visible to the naked eye; a building or foundation must have structural damage; and a government inspector must condemn the structure.
For homeowners debating whether to buy the added sinkhole protection, Trump offers this advice: "Be as covered as you can. It takes a little bit of guessing."
What does sinkhole insurance cover?
Unlike catastrophic coverage, sinkhole protection provides homeowners more flexibility with cosmetic problems like cracked walls or buckled flooring that may be related to ground movement under the soil, experts said.
Do homeowners have other choices besides Citizens when selecting sinkhole insurance?
Yes. Several insurers, like Lexington and Landmark, offer protection in Tampa Bay, but the rates are substantially higher than Citizens' current rates, said Greg Roe of Roe Insurance in New Port Richey. The increased rates would be more in line with what other companies charge now, he said.
Citizens will not write a sinkhole policy if another company's rate is within 15 percent of Citizens rate, Trump said. That is not a problem right now because the other companies current rates are typically 50 percent higher, he said.
Can you get a mortgage without sinkhole coverage?
Generally, yes, but that could change in the future as sinkhole problems escalate in the bay area, said Andy Wood of American Mortgage Services in Tampa. He expects lenders to require sinkhole coverage just as they require flood insurance in low-lying areas.
Thomas Roney of Roney Insurance in Tampa has already seen two cases in the last month where lenders required sinkhole protection before issuing a loan. One case involved refinancing a mortgage, he said.
"There's not a lot of alternatives," he said. "This is going to become an issue."
Will the proposed rise in rates affect homes sales?
It depends who you ask.
Roe didn't think so.
But Barbara Quist of Re/Max Advantage Realty in Spring Hill said paying several hundred dollars more each month could knock some buyers out of the market or force them to look in other areas. "It worries a lot of people," she said. "Any increase will impact sales."
If the state grants Citizens its request for huge rate increases, will other insurance companies re-enter Florida to compete for the business?
Trump didn't think so. "I don't think it will matter," he said "There's too much of a risk."
Roe, on the other hand, thought the rate increases would make it easier for other companies to make a profit on sinkhole coverage. It also creates a healthier market, he said.
"The more players out there, the more competitive it is," he said.
Mark Puente can be reached at email@example.com or (727) 893-8459. Follow him on Twitter at twitter.com/markapuente.