Mold Claims Hobble Texas Homeowners Market

January 19, 2002

Jan. 17, 2002

Mold-related claims have caused significant hardening of the Texas

homeowners market, and many carriers have reduced or altogether ceased

writing new business in the state, according to A. M. Best.

Some insurers are posting triple-digit loss ratios as of Sept. 30, 2001 due

to mold claims. The Texas Department of Insurance recently issued new

guidelines in an attempt to stabilize the market, but A.M. Best holds that

carriers will continue to face financial hurdles in the near term as the

debate over coverage issues and the potential for litigation persist.

The financial strength ratings of some Texas carriers are likely to head

south in the face of worsening financial performance and capital position.

The frequency of mold-related claims has increased exponentially, and the

severity of these claims has also grown over the past 18 months. Claims with

incurred loss and allocated loss-adjustment expenses of more than $5,000

have nearly doubled in number. In March 2000, more than 75 percent of claims

were for less than $5,000; in June 2001, that number was below 50 percent.

The complexity and lack of standards in settling mold claims have

contributed at least partially to this trend, as well as the growing

participation of public adjusters and plaintiff attorneys.

TDI has asked the state attorney general to investigate mold-remediation

practices to determine whether costs are excessive in some cases.

Loss ratios for homeowners business have worsened notably because of ongoing

weather-related catastrophes coupled with increasing frequency and severity

of mold claims. For the four years before 2000, loss ratios averaged just

below 60 percent. At the end of 2000, however, the overall loss ratio

increased to 86 percent, with this trend continuing into 2001. Quarterly

statutory filings of a smaller sample of companies indicate that direct loss

ratios for writers that operate predominantly in Texas--representing 66

percent of the market -- were well into the triple digits through the first

nine months of 2001.

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