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Citizens' latest threat: sinkholes

Published Feb. 1, 2006

Even if Citizens Property Insurance Corp. fixes its problems with hurricane coverage, sinkholes in the Tampa Bay area loom as a widening threat to Florida's insurer of last resort, according to a report released Tuesday.

To many living in the bay area, particularly Pasco County, it may come as no surprise the Citizens' report complains of a "growing and alarming trend" of Florida residents seeking sinkhole coverage and filing claims for damage the past four years with Pasco, Pinellas, Hillsborough, Citrus and Hernando counties leading the way. But the latest numbers highlight just how much the sinkhole crisis is afflicting Citizens' financial stability:

+ The average sinkhole claim is more than six times as high as the average paid nonsinkhole claim. Last year, Citizens paid out more than $40-million in sinkhole claims.

+ The average sinkhole claim has increased from about $20,000 in 2003 to about $54,000 last year.

+ The percentage of total indemnity payments for sinkhole claims is 20 percent of Citizens' total indemnity payments.

+ Reserves for sinkhole claims comprise 43 percent of outstanding noncatastrophe reserves.

+ Sinkhole policies in the Tampa Bay area have ballooned from about 1,000 policies in 2001 to more than 150,000 in 2005.

The report recommended aggressive legislation to address the problem, and inclusion of private companies to relieve the burden.

"Serious consideration should be given to creating an alternative risk mechanism for sinkhole exposure," the report reads, "or capping sinkhole coverage with optional purchases of additional coverage amounts."

Run by the state, Citizens insures one in five property owners who cannot find coverage in the open market. Originally intended as a backstop for insurers who shunned Florida for its hurricane risks, Citizens has morphed into a sinkhole backstop for insurers in recent years.

More than two-thirds of the $95-million paid by Citizens since 2002 on sinkhole-related claims was spent in Pasco County.

The report recommended the Legislature make residential structures valued at more than $1-million ineligible for coverage with Citizens. Coastal properties valued at $1-million account for 6,000 of the more than 810,000 properties insured by Citizens.

The state's ultimate goal, according to the report, is to get more insurers to issue policies for Florida's homes, making it easier and cheaper for people to get insurance coverage.