On the brink of crisis: Lessons from Texas on controlling mold exposures

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On the brink of crisis: Lessons from Texas on controlling mold exposures

National Underwriter; Property & casualty/risk & b - January 14, 2002

Hanson

National Underwriter

Erlanger

For the past six months, the Texas homeowners insurance market has teetered

on the brink of crisis while Commissioner Montemayor-- buffeted by the

forces of homeowners, remediation firms, consumer advocates, and the

insurance industry-has walked a political tightrope on the mold issue.

Nearly everyone associated with the property-casualty insurance industry has

watched this high-wire act with great interest because the dramatic increase

in mold claims in Texas could be a harbinger for what occurs in other

states.

While there are unique aspects to what is occurring in Texas, the enormous

financial losses associated with mold could occur in almost any state.

The problems that serve to make the Texas marketplace precarious for

insurers originated ,from unique, state-mandated policy forms that offer

very broad coverage regarding water damage claims. In addition, the

requirement that all homeowners insurers offer identical coverage meant that

the entire marketplace became vulnerable in an instant.

Across the country, sensationalist media coverage has amplified consumer

concern of the possible health dangers of mold. In addition to heightened

public awareness, factors such as modern building materials, ambitious trial

attorneys, and the emergence of so-called " mold remediation specialists "

contribute to the increasing number of mold claims.

The potential for abuse is enormous among mold remediation firms. Because

there are virtually no state or federal standards covering companies that

enter this business, anyone can become a remediation " expert " by virtue of

putting a magnetic sign on their truck. Unscrupulous testing and cleanup

companies can cause undue concern, charge outrageous fees and trigger

unjustified claims.

In response to the financial uncertainty created by the threat of increased

claims, out-of-control remediation costs, and the potential for lawsuits,

insurers are seeking ways to diversify the scope of coverage offered and

decrease the occurrence of mold following a water loss.

As an example, we recently saw insurers in Florida move to control their

exposure to mold damage claims by seeking more explicit exclusions regarding

mold coverage. While other states have not seen the rash of mold claims

experienced in Texas, regulators in the bordering states of Oklahoma and

Louisiana have been prompted to hold meetings to discuss the issue.

The industry is anxious to partner with regulators to clarify coverage

questions and address excessive or abusive remediation practices. The

cooperative efforts being undertaken in these states are positive and should

help protect the financial stability of their homeowners insurance markets.

In attempting to resolve the issue in Texas, Commissioner Montemayor sought

to relieve the financial burden on insurers without affecting traditional

water damage coverage. His order retained coverage for removal of mold, but

eliminated coverage for testing, treating, containing or disposing of mold

beyond that necessary to repair or replace property that was damaged by

water.

While the order is a commendable and creative effort at compromise, it falls

short of the comprehensive overhaul that is needed. Even under the new

order, insurance companies lack the flexibility to compete against one

another under open-market principles.

From the beginning, the National Association of Independent Insurers has

advocated for policy language in Texas that would be more uniform with the

rest of the country. In every other state, insurers have more freedom to

offer consumers a variety of coverage choices.

Competition-- based solutions, better defined policy language, increased

attention on abusive practices among mold remediators. and consumer

education on proper maintenance and mitigation are the factors that will

result in a healthier homeowners insurance market in Texas.

What homeowners need to know is that most mold problems are preventable, and

prevention should be our industry's primary message to consumers. Insurers

need to help consumers become better risk managers and understand that they

can avoid most mold problems by checking for signs of water leakage and

responding immediately. This is a critical message that is not often heard

in the media.

In addition, insurers are addressing mold issues by providing additional

claims-handling training to strengthen the knowledge base of claims staff so

that they are better able to work with policyholders and remediators.

Ultimately, the mold issue is manageable.

* First, we must reduce the hysteria that surrounds the issue so that

everyone involved can make decisions based on facts rather than emotion.

* Second, we need to`foster a regulatory environment where market forces are

allowed to generate competitive solutions.

* Finally, we should emphasize education and prevention to -ensure that mold

does not become a larger problem than necessary.

Copyright National Underwriter Company Jan 14, 2002