Sinkhole payment abuse has caused a huge increase in insurance premiums for homeowner insurance policies in Florida. This type of fraud has now forced insurance companies in Florida to come up with better ways of addressing this problem and reduce losses. A spokesman for a florida based homeowners insurance carrier recently stated; ”not only is rising premiums a consequence of sinkhole fraud, but there is also a need for accountability for any money issued to affected parties”. He added that a majority of insurance carriers are now opting to “pay the company that performs the repairs directly” instead of issuing payment to the policyholder, thus reducing chances of misuse of funds.
Insurance Carriers have recently carried out investigations concerning sinkhole fraud and discovered that in most cases, insurance providers do not follow up how their payments have been used by the policyholders. A 2010 report by the Office of Insurance Regulation indicated that sinkhole claims have cost $1.4 billion between 2006 and 2010, from data acquired from 211 insurers and almost 25,000 open and closed sinkhole claims. Sinkholes have proven to be the leading cause of insurance losses and considered a criminal offense in the state of Florida. In May 2011, Florida Governor Rick Scott initiated changes to the property insurance bill, which was approved by the Senate on the 5th of the same month. The bill received applause from the insurance industry in the state and actively sought to curb sinkhole and other insurance fraud in Florida.
The new law, among other things, allows insurance to make homeowners pay for needed repairs using their own resources before getting reimbursement and also reduces the time for making sinkhole damage claims. Sinkhole damage cover will also be made for the home only, and not for driveways, patios or other structures if affected by sinkholes, beginning January 1, 2012. The new law places greater responsibility to the homeowner rather than the insurance provider, such as by requiring policyholders to sign contracts to stabilize the property and fix the foundation of the home within 3 months after insurers confirms payment. These regulations seek to reduce losses and potentially decrease homeowners’ premiums in Florida.