(An additional report on the workshop will be posted Thursday.)

House insurance committee members appeared ready after a three-hour workshop today to tackle major sinkhole insurance reforms, with many convinced most sinkhole claims filed in Pasco and Hernando counties are “get rich quick” schemes. A couple of legislators compared filing a sinkhole claim to playing the Florida Lottery. (Click here for Committee Meeting Packet)

House members don’t have a specific sinkhole package yet – the Senate does as part of SB 408 being developed in the Banking & Insurance Committee – but it is clear this will be a major issue in both chambers during the 2011 session beginning March 8. House Banking & Insurance Subcommittee Chairman Bryan Nelson, R-Apopka, said the issue will be addressed as part of a comprehensive property package to be sponsored by Rep. John Wood, R-Haines City.

Tom Jerger, Modern USA, a member of the FIC Property Committee and chairman of the Florida-Based Property Insurers CEOs Group, appeared before the committee. ( pdf Click here for his presentation .) Tom also represented the Florida Property & Casualty Association. “There are ways to do it (eliminate the crisis),’ Jerger said. However, “I don’t want a solution so we don’t cover people who need coverage.”

The mandate that insurers offer the sinkhole coverage currently being abused over cracks and other cosmetic damage should be repealed, Jerger said. Insurers should have the option to offer the coverage and flexibility to restrict it through sub-limits. Andrew Deckert, Nationwide Insurance, outlined as an option to resolve the sinkhole “tail” issue a public sinkhole repair facility.

Most of the three-hour workshop was devoted to building a record of the crisis and the abuses and a basis for substantial legislative reforms later.

Rep. Wood is vice chair of the insurance subcommittee as well as the property bill sponsor. He got Pasco County Assistant Property Appraiser Wade Barber to confirm that the number of homes uninhabitable from sinkholes or even sustaining visible major damage is only in “the double digits.”

“Is there a sinkhole problem physically in Pasco County,” Wood asked Barber. “I don’t think Pasco County, to any significant extent, is in danger of having houses fall into holes,” Barber replied. “Houses are not falling down. People are not not living in their houses.”

Seventy-five percent of the homes identified by Barber’s office as having been involved in sinkhole insurance claims continue to be occupied by the owner, Barber said. Many others are being rented.

Monte Stevens, Florida Office of Insurance Regulation lobbyist, said OIR calculates Citizens Property Insurance Corporation and private insurers will pay up to $2.4 billion in sinkhole insurance claims from 2006 to 2010, once all of the claims are settled. Only 1 percent of the claims will involve catastrophe ground collapse, a real sinkhole, Stevens said. The vast majority of claims are based on cracks in drywall or a driveway which are not signs of a real sinkhole.

“A large portion of this problem is being driven by advertisements from law firms and public adjusters,” Stevens said.

“There are certainly individuals who are in the middle,’ Stevens said. “There are individuals, although a small percentage, who do have legitimate claims” that do not meet the catastrophe ground collapse definition. One proposal getting serious attention, endorsed by Jerger during his presentation and included in the Senate bill eliminates the mandate for sinkhole insurance in current law. If the Legislature takes that step, it must protect the homeowners in the middle, Stevens said. If the much abused sinkhole coverage becomes optional instead of mandatory, “we don’t believe anyone is going to write it any more.”

Repairs should be required following successful sinkhole claims, Stevens said. “Most of the time, people file these claims and they don’t repair their homes….where it is feasible, the home should be repaired.”

Insurance Chairman Nelson asked Stevens about “a run on the bank, so to speak,” an explosion of sinkhole claims based on current law before significant reforms take effect. He also was concerned about “the tail,” with many claims being filed under the current law and policies from up to five years ago which are no longer in force. “I don’t know how you stop those claims that are already in the pipeline and if you do, you will still have bankruptcies,” Stevens said.  ‘A handful of insurance companies will go into receivership” regardless of what is passed this year, he predicted.

Several House insurance committee members also asked about “the tail.” One wanted to know what it might mean in additional losses for Citizens Property Insurance Corporation. Citizens’ Susanne Murphy could not provide a specific answer, but she stated, ‘Since we have a substantial number of these policies, we have a substantial part of the problem.”

Ashley Mayer, lobbyist for Chief Financial Officer Jeff Atwater, made a presentation on the neutral evaluator process and stated, “The current system is not working.” She had several recommendations for changes, including clarifying the burden of proof, establishing standards for a conflict of interest involving a neutral evaluator and clarifying the meaning of “10 business days.”