Revised policy coverage forms for sinkhole, chipped tile and water losses are expected to be filed by Citizens Property Insurance Corporation with the Office of Insurance Regulation, assuming its Board of Governors later this month approves a recommendation by its Actuarial and Underwriting Committee.

Citizens staff recommended and the committee approved the recommendation, noting that the policy language clarifications are being proposed in order to “lessen the opportunity for misinterpretation of the coverages and or exclusions expressed in the policy.”

Sinkhole losses, combined what is termed a “considerable increase in the frequency and severity of personal residential claims in which payment for undamaged flooring,” represent a “large proportion, or even a majority” of the insurer’s paid losses, Citizens staff reported.

Paul Palumbo, Citizens vice president of underwriting, noted that in the year 2009, Citizens earned $19.6 million in sinkhole premium but incurred an estimated $97 million in losses related to sinkholes.

In an Executive Summary prepared as part of the staff recommendation to modify the claims forms, staff said, “Despite having far fewer policies that include sinkhole coverage, losses caused by sinkhole activity continue to rank in the top three of Citizens’ non-catastrophe losses.”

The summary points out that Florida statute allows insurers to require a sinkhole inspection as a condition for purchasing sinkhole loss coverage, and staff said that “Citizens should implement this condition in an effort to screen risks with existing evidence of sinkhole damage before offering them a policy that includes full sinkhole coverage.”

Staff noted that a number of private insurers have already filed similar rules and obtained approval from the Office of Insurance Regulation (OIR). In addition, other carriers have implemented the requirement for submitting a sinkhole inspection prior to binding sinkhole coverage in any zip code where they or another carrier have experienced at least one reported sinkhole loss.

The summary further notes that Citizens plans to follow suit to proceed with requiring an inspection in the zip codes that primarily drive sinkhole losses.  “Upon conclusion of a study to determine the zip codes that should be targeted for the inspection requirement, staff will develop the appropriate rules and submit filings with the OIR.”