"Cheaper" insurance rates often mean far less coverage. In this world, you often get what you pay for. If there is ever a lesson to be learned about that, just ask those that live in the "Sinkhole Capital of the World," Pasco County, Florida. They can elect to get "Catastrophic Sinkhole Coverage" as ordinary coverage or get "Sinkhole Coverage" which is every bit as catastrophic where it counts–the ability to get back to where you started from–but covers damage from a slow moving sinkhole. The latter optional coverage is very expensive and covers Floridians from loss caused by most of the sinkholes that occur. The other coverage, which is much less costly, covers only very quick and substantial collapse sinkholes which happen once in a gazillion years to the properties owned by anybody. Guess which form the insurance industry wants to insure? BINGO!
I fought against this new option. I felt people would opt out of coverage mandated by their mortgages as well as avoid the exposure to the most probable loss in areas close to Tampa. I thought "cheap" versus "safe" was bad public policy. I lost.
Well, complaints about the new law are starting to filter in as indicated in this letter to the editor:
"Sinkhole plan didn’t work out
Did our elected officials really think mortgage companies would not catch on about the automatic dropping of sinkhole coverage? The if-they-don’t-ask, don’t-tell-them suggestion that Sen. Mike Fasano made at a meeting at the Spartan Manor was not going to work for long.
While I was president of HAC (Having Affordable Coverage) I strongly warned people the new legislation to automatically drop sinkhole coverage was risky and that when the mortgage companies figured it out the coverage would be required. We already knew of local banks that were requiring it, but it is only a matter of time before they all will require it. It is after all a peril that can destroy your home and cost tens of thousands of dollars to repair.
Well the proof just came in the form of a letter from U.S. Bank Mortgage Co. to a mortgage holder. The letter reads in short that the homeowner who had his sinkhole insurance automatically dropped from his insurance company is required to maintain his coverage or it will be forced.
The letter states:
"We understand from speaking with many insurance agents located in Florida that catastrophic ground collapse has been added to these policies in lieu of sinkhole coverage. However, our research has indicated major differences between these two perils. A sinkhole is the systematic weakening of the land supporting your home. If damage attributed to a sinkhole were to occur to your home, your property could still be deemed livable by your local authorities.
"A catastrophic collapse is a geological activity that results in all of the following conditions: 1) an abrupt collapse of the ground cover, 2) a depression in the ground cover visible to the naked eye, 3) structural damage to the building, including the foundation, and 4) the insured structure must be condemned and ordered vacated by a government agency. While we understand the financial burden caused by the current insurance situation in the state of Florida, we are required to ensure your home is covered in the event of damage. Sinkhole damage not only causes significant damage, but the repair costs are very high. Without sinkhole coverage, a homeowner would have to bear the burden of the cost to repair the property while maintaining their monthly mortgage payment.”
Now, what shall I tell this man who has Citizens Insurance, lives in Pasco County where no other insurance companies are writing and cannot afford to add the sinkhole policy back? Not to mention now to add the insurance back you will have to have a sinkhole evaluation at your cost. So much for our elected officials working to help lower our insurance!
Virginia Stevans, New Port Richey"
It will get worse as people incur uninsured losses and everybody asks why the risk of such loss was not spread across Florida. Eventually, these losses will result in lowered property values, lowered tax base, lowered appeal to live in the community, lowered expectation of property appreciation and a lowered economic opportunity in the Pasco community. In my view, Pasco County has doomed itself in the long run by passage of a law that lowers their insurance premiums in the short run versus building recovery in the long run. This letter is just the start.