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Why Sinkholes Form in Florida

Sections of a building at a resort near Orlando’s theme park district collapsed into a sinkhole on Aug. 12, forcing the evacuation of 105 guests in the structure and also dozens of visitors staying in two adjacent three-story buildings.

Sinkholes are as much a part of the Florida landscape as palm trees and alligators. Florida has more of them than any state in the nation. Earlier this year, a man near Tampa died when a sinkhole opened up underneath his bedroom.

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Experts say sinkholes aren’t occurring at a greater rate than usual but that the high-profile nature of recent one in populated areas has drawn attention to them. There also has been a rise in sinkhole claims in Florida, but insurance officials believe some of those claims are questionable. Here are some answers about why sinkholes form and their costs.

Why Are There Sinkholes in Florida?

Florida’s peninsula is made up of porous carbonate rocks such as limestone that store and help move groundwater. Dirt, sand and clay sit on top of the carbonate rock. Over time, these rocks can dissolve from an acid created from oxygen in water, creating a void underneath the limestone roof. When the dirt, clay or sand gets too heavy for the limestone roof, it can collapse and form a sinkhole. Sinkholes are caused naturally but they can be triggered by outside events.

What Triggers Sinkholes?

Although sinkholes are formed naturally, they can be triggered by heavy rainfall, drought followed by heavy rainfall, tropical storms and human activity. The most common actions by humans that cause sinkholes are heavy pumping of groundwater to spray on oranges and strawberries during freezes to keep them from being damaged, well drilling, excavating, creating landfills, leaking broken water lines and pounding or blasting from construction.

Where Are Sinkholes Most Common in Florida?

Three counties in the Tampa region are known as “sinkhole alley.” Two-thirds of the sinkhole damage claims reported to the state Office of Insurance Regulation from 2006 to 2010 came from Hernando, Hillsborough and Pasco counties. Sinkholes are less common in South Florida, home to the state’s two most populous counties — Broward and Miami-Dade.

How Many Sinkholes Occur in Florida?

The state Office of Insurance Regulation says reported claims from sinkholes have risen in recent years. More than 2,300 claims were reported in Florida in 2006 but that figure jumped to almost 6,700 claims in 2010. There is no geological explanation for the rise and state insurance officials believe many claims are questionable. There must be structural damage to a home for a policyholder to claim a loss from a sinkhole, but insurance officials say claims are often paid without that proof.

How Much Damage Do Sinkholes Do?

The state Office of Insurance Regulation says sinkhole claims in Florida cost insurers $1.4 billion from 2006 to 2010.

Florida Approves 6.3% Increase In Citizens Homeowners Rates

Florida homeowners who secure coverage through the state-backed property insurer will see their rates increase by a statewide average 6.3 percent based on a ruling by state regulators.

Homeowners with multiperil policies will see a 4.4 percent increase – or about $111 per policy — as part of the average hike when the rates take effect next January. Homeowners with wind-only policies will see an average 10.5 percent increase or about $265 per policy when their rates take effect as of February 1, 2014.

Citizens Property Insurance Corp. filed for a statewide average 7.3 percent increase in the insurer’s combined wind-only and multiperil homeowners rates. Regulators reduced that to 6.3 percent, which includes a base rate, plus sinkhole coverage where applicable and the Florida Hurricane Catastrophe Fund cash build-up factorof 4.87 percent.

This is the fourth consecutive year that Citizens’ homeowners rates have gone up.

In addition to the increases in homeowners’ rates statewide, regulators approved an increase in sinkhole rates in three counties.

In a public hearing held last month, Citizens officials said that reforms enacted by lawmakers in 2011 helped reduce sinkhole losses by an estimated 52 percent. Even so, however, the insurer’s said losses still justified a 207 percent increase in sinkhole rates with the majority of that need located in three counties.

Regulators placed a 20 percent cap in sinkhole rate increases in Pasco and Hernando counties and a 50 percent cap in Hillsborough County.

Homeowners’ sinkhole coverage in those counties will still see substantial increases. For example, in Pasco County the average premium for sinkhole coverage is $1,829. Under the new rates, that number will grow to $2,195 or $366 per policy.

Homeowners in Hernando County will see an average $338 increase in premiums for a total of $2,026. In Hillsborough County the increase will average $191 for a total of $574.

In the state’s other 64 counties, no other sinkhole rate increases will be applied to homeowners’ multiperil policies.

Another line of business that will see an increase is in Citizens dwelling and fire wind only rates and dwelling and fire multiperil rates. Regulators, taking into effect the statutory 10 percent cap, applied the maximum rates to those policies.

Citizens President Barry Gilway said the new rates will assist the insurer in meeting its goal of reaching actuarially sound rates.

It remains to be seen just how many homeowners will see an increase. The Office of Insurance Regulation just approved a plan by 10 insurers to remove 400,000 policies as of the end of hurricane season in November.

Traditionally, however, the difference between the number of policies sought by private insurers and the number of polices actually removed from Citizens is some 30 percent.

Citizens officials are also optimistic that the establishment of the clearinghouse next year whereby policies will first be shopped to the private market will eventually led to a significant drop in the numbers of policies covered by Citizens.

What is a Certificate of Insurance?

As your insurance agent we are always looking at ways to protect you in the event of a claim. You will notice that we always suggest that you request a Certificate of Insurance from your vendors. Whether it is your lawn maintenance company that works for you on a regular basis or an elevator inspector that comes once every few years, it is important to make sure that all sub-contractors have insurance.

What is this valuable document that you are asking for?

Certificate of Insurance are forms that are provide by Agents to verify the existence of insurance coverage. They are commonly used when an agreement or contract requires maintaining types of insurance.

These documents are issued to the certificate holder-the person or entity that needs to verify insurance coverage. Though common and relatively straightforward, there is quite a bit of confusion about what Certificate of Insurance do, and more importantly, do not do.

A Certificate of insurance provides an overview of insurance coverages that are in place at the time it is created. They:

Are NOT insurance Policies
Do NOT provide the certificate holder with any rights under the insured’s policies. This means that the certificate holder cannot file or request a defense under the insured’s policies.
Do NOT amend, extend or alter the coverage provided by the insured’s policies. This can be accomplished by adding an endorsement, rider or amendment to the policy
Do NOT create a contract between the insurance company and the certificate holder
Do NOT guarantee that insurance coverages listed on a Certificate of Insurance will continue in the future. A Certificate of Insurance issued today may not be accurate for tomorrow.
ARE provided for informational purposes Only.

A Certificate of Insurance is normally a generic form, called an ACORD, used by most agencies and companies. They will show information on:

The insurance companies issuing the policy
The policy number
Effective dates
Types of insurance (ie: general liability, automobile, workers’ compensation, property)
Policy Limits

It is important to always ask your sub-contractor to name you as an additional insured. The certificate of insurance has a box that will be checked showing this and you will be provided with additional security.