Just four years ago, every Citizens insurance customer in Pasco and Hernando counties carried sinkhole coverage.
Then state lawmakers made such coverage optional, and by 2009, the percentage of Citizens customers with sinkhole insurance dropped to 22 percent in Pasco and 37 percent in Hernando.
But the number of sinkhole claims over that three-year period? They went up — by 187 percent in Pasco and 384 percent in Hernando.
The surge wasn't limited to the so-called "sinkhole alley" counties like Pasco and Hernando. Statewide, the number of sinkhole claims for Citizens customers doubled over a four-year period, and in 2009 the insurer incurred more than $84 million in sinkhole losses — with roughly $20 million in premiums to cover those costs.
Those figures, laid out in a state Senate committee report released last week, point to what many say is a sure thing this session: New sinkhole legislation.
The report, which relies heavily on input from insurers, says that a major driving force behind the increase is that many policyholders are "incentivized" to file a claim, take the cash and never do the repairs. It quotes Florida Insurance Commissioner Kevin McCarty as saying that many claims are questionable.
And there is a significant impact of the sinkhole claims on property values: Property appraisers estimate sinkhole homes drained at least $40 million last year from the Pasco tax base, and $173 million over five years from the Hernando tax base.
The report lays out a number of options, which include:
• Changing the legal definition of what constitutes sinkhole damage, with an eye toward reducing the number of claims submitted for minor cosmetic damage
• Taking sinkhole coverage out of the insurance market and handing it over to an independent government program that would handle claims
• Creating a statute of limitations for sinkhole claims
The report will be discussed in detail Tuesday at a meeting of the Senate banking and insurance committee. That committee is expected to come up with a comprehensive bill on sinkhole reform, said state Sen. Mike Fasano, R-New Port Richey, a committee member.
The insurance and real estate industries are all over it, saying it's their top priority for 2011.
New Port Richey Realtor Greg Armstrong, who has met with legislators on behalf of the Florida Realtors, said state Senate president Mike Haridopolos "told me that this is a major piece of legislation."
"It's not because the whole state cares about Pasco and Hernando," said Armstrong, who will speak at the committee hearing Tuesday. "But because it's starting to affect the entire state."
Armstrong and others attribute the trend in part to marketing by sinkhole lawyers and public adjusters, who file claims on behalf of homeowners and receive commissioners on claims paid.
That's his theory for why sinkhole claims went up even as the number of policy holders declined. "What we see is an extreme increase in the amount of money being spent to market to convince people they may have a sinkhole," he said.
Sam Miller, executive vice president of the Florida Insurance Council, said the spike in sinkhole claims is "the biggest crisis in the property insurance market."
He said state law is unclear on what constitutes sinkhole damage, leaving insurers with the burden of proving that sinkhole activity does not exist. In many cases, especially when lawyers get involved, the insurers pay out cash settlements rather than face lengthy lawsuits or accusations of "bad faith."
"It's one thing to pay to repair the cracks," he said. "It's another thing to pay the policy limits on your house."
Consumer groups and sinkhole lawyers noted that the insurance and real estate companies feel emboldened this year by a more conservative Legislature and new governor.
Bill Newton of the Florida Consumer Action Network said he's concerned the law could change too much in the opposite direction. He's especially worried about any attempts to make it harder for homeowners to file "bad faith" claims alleging their sinkhole insurers aren't living up to the policy.
"I don't feel sorry for the insurance companies, they have most of the advantages now," he said. "What they're talking about is bad faith. They don't want to handle the claims."
David Beasley, president of the Florida Association of Public Insurance Adjusters, said his industry's role is overstated in the report. He questioned how much of an impact the state's 1,340 licensed adjusters could make.
He said owners of sinkhole homes often angle for cash settlements because of this reality: Even if they do pay for the fixes, their homes will still retain a reduction in value because of the stigma.
Beasley estimates repaired homes would fetch only about 60 percent of their original value. Pasco Property Appraiser Mike Wells calculates that impact as much lower, more like a 5 percent drop.
Sinkhole lawyer John Byrne said he took issue with complaints about homeowners getting money for what seem to be minor problems. Cracks in the walls, popping tiles and windows that won't open could be symptoms of bigger problems down the road.
"If I felt a lump in my throat that I hadn't felt before, yeah, I'm going to the doctor to check it out," said Byrne, who is also a public adjuster.
He suspects the increase in claims tracks the Legislature's changes to the sinkhole law in recent years.
"Every time they tinker with the statute, the number of claims increases," he said. "You've got the insurance companies pushing for these changes to tighten up their bottom line. Every time they do that the homeowner gets scared."
Insurers often point out they are not talking about yanking coverage for extreme situations, such as the occasions when a sinkhole swallows up the home. Catastrophic ground coverage is still required.
Ginny Stevans, a Pasco resident who sits on the board of the Florida Consumer Action Network, noted that those cases are extremely rare, less than 1 percent.
"I don't want to pay for somebody to live in a house for free just because they have cracked sidewalks," she said. "But there are other people who can put their hands in the cracks on the walls, and that's not covered under catastrophic loss."
Jodie Tillman can be reached at firstname.lastname@example.org or (727) 869-6247.