The New Enemy - Mold puts damper on home insurance

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http://www.amarillonet.com/stories/031002/bus_thenewenemy.shtml

Sunday, March 10, 2002

6:35 a.m. CT

Framed: Shown is an example of the mold Miranda and Brown say they

have found on window frames in their 3-year-old Centex-built home in Tulare,

Calif.

SHNS Photo

The New Enemy

Mold puts damper on home insurance

By Cheryl Berzanskis

cberzanskis@...

The American dream just got a little more expensive to insure - if you can

insure it at all. A near tornadic shake up in the Texas insurance market

last year left homeowners with higher premiums, and for buyers, closer

underwriting scrutiny of the houses they buy and in most cases, more limited

coverage.

Last fall the big three of Texas homeowners insurance - State Farm, Allstate

and Farmers Insurance Group - trimmed their product coverage, and in the

case of State Farm, stopped selling policies to new customers.

All three said elevated payouts were harming them. They also rewrote

traditional homeowners' policies with the blessing of Texas Department of

Insurance to scale down liability for mold-related claims. Premiums rose in

tandem with the revamped policies.

State Farm Insurance stopped writing homeowners policies, called HO-Bs, for

new customers in September 2001, said public affairs manager Androff.

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What Lies Beneath: Gutman, owner and president of Gutman Turnkey

Contractors, works in an environmental protection suit as she examines mold

damage to a house in Flour Bluff on June 12, 2001.

SHNS Photo

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The company now offers current policy holders a revised HO-B policy that was

approved by the Texas Department of Insurance in November, he said.

The revised HO-B policy covers only basic clean up of mold and requires

homeowners to notify the company immediately of any " sudden or accidental "

water damage, Androff said.

The old HO-B policy included expensive mold testing and remediation, he

said.

In November, Texas Department of Insurance Commissioner Montemayor

allowed homeowner policies to be restructured to delete expensive coverage

for mold testing, treating, containing or disposing of mold beyond what is

required to repair or replace property damaged by water.

" Such procedures have contributed to unexpected and dramatic premium

increases, " says the TDI Website.

But of State Farm's two recent premium increases, only one is mold related,

Androff said.

" We've implemented two separate rate adjustments, one effective in November

(2001) and one effective this month (February), " he said.

" The November increase was not related to mold claim experience, but based

on 2000 claims costs. We didn't start to see an increase in mold claim

volume until 2001, " Androff said. " I think a good portion of that (the

February increase) is related to the mold claim experience. "

He said the average Amarillo policy holder will see a 33 percent increase,

though there will be variations based on such things as deductible and type

of roofing material.

" The lower your deductible is the more you're going to be impacted on the

rate increase, " Androff said.

Allstate Insurance dropped the HO-B policy in January in favor of a policy

called HO-A Plus, said Sandy Hsu, a communication associate in Irving.

" It (HO-A Plus) caps mold remediation from a covered water loss at $5,000, "

she said. " We will be offering it to our current HO-B customers upon renewal

in March. "

" There was talk of not writing any new policies. But we didn't do that. We

continued to write policies. When got the endorsement approved by the Texas

Department of Insurance in December, then we wrote all new policies with

HO-A Plus, " she said.

Farmers Insurance stopped offering the HO-B in August in favor of an HO-A

policy and is not renewing HO-B policies now, K. Flynn, media relations

manager in Los Angeles.

Farmers, with about 2,400 agents in Texas, also raised premiums, Flynn said.

" The reason the premiums have gone up over all is because it has been a

heavy storm year, " she said.

Recent approval has been obtained to add an improved water-damage

endorsement, Flynn said.

Allstate's Hsu said it is too early to tell whether the policy changes will

affect local agents.

" This is an industrywide issue that affects all insurance companies and

every insurance agent is facing the same issues of policy changes. We think

it is unlikely there will be any effect because of that, " she said.

Ken J. Brown, broker/owner of Ken J. Brown Realtors, said two prospective

buyers backed out of contracts on a house that showed evidence of some kind

of mold underneath a kitchen sink.

A third buyer took the house after the wood under the kitchen sink was

replaced, other areas were bleach treated and the interior was painted, he

said.

" That's the only one I've ever lost because of mold, " he said.

Brown said he owns or manages 135 houses, " And not one has complained about

mold. "

Increased insurance premiums will find their way into the monthly rental

cost eventually, he said.

" When the property becomes vacant, we will go up in accordance with the

increase, " Brown said.

On the sale side, Brown said, insurance companies are scrutinizing property

more closely.

Applications for homeowner's policies bring more questions, said Androff.

For policy holders requesting optional mold remediation coverage, agents

make visual inspections around sinks, water heaters, washer connections,

showers and tubs, he said.

For those not requesting optional mold remediation coverage, Androff said,

" We may become aware of a prior water loss in the underwriting process.

State Farm obtains information about past losses from an outside vendor that

maintains a database. Most insurance carriers report loss information to

this vendor, or similar venders, and also have access to the database

information. "

If your home is financed, insurance is mandatory.

" The requirement of insurance coverage on the home is part of the

contractual agreement between the lender and the borrower through the terms

of the deed of trust, " said Kurt Gehring, president of the mortgage lending

of First State Bank.

" We require on an owner-occupied situation an insurance policy which

provides replacement cost coverage, " he said. " I've always been told an HO-B

policy is basically a broad form of insurance that would cover your house

against loss if an elephant walked through your house. "

Gehring said he has not seen a customer turned down for a mortgage loan just

because of higher insurance premiums, though higher escrow requirements for

insurance and taxes do make for steeper payments.

The bank is conducting annual escrow analysis now, he said.

" Due to the fact that insurance premiums have increased over what they were

last year, people are getting new payment adjustments due to the fact that

insurance has gone up, " Gehring said.

Since escrow contributions are collected based on last year's premium

amount, a higher actual premium requires the bank to collect money to make

up for last year's shortfall and enough money to pay the higher premium in

full next year, he said.

" There have been instances that a customer has been with an insurance

company whereby they have been renewed at not only an increased premium but

with reduced coverage, " Gehring said.

Interest rates on 30-year notes are at 6 5/8 percent and for 15-year notes

are at 6 1/8 percent, he said.

" Thank God for low interest rates, " said Gehring.

Phillis at Athlan Mortgage said rising insurance rates are harder on

lower-income people, though all economic groups face the problem.

" We get insurance at time of closing and a month or so later the insurance

company will say, 'Oops, we can't insure you.' Then people will have to pay

double what they thought they would have to pay, if they can get insurance

at all, " she said.