Mold undermines homeowners market

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Mold undermines homeowners market

National Underwriter; Property & casualty/risk & b - June 24, 2002 00:00

E E Mazier

National Underwriter

Erlanger

HOMEOWNERS MARKET

Insurers' ostensible fear of mold claims is making the placement of

homeowners insurance a real challenge in California and Texas, two states

most affected by the issue, agents and other industry officials say.

Jeff Craig, owner and partner of Monterey Insurance Agencies in Monterey,

Calif., explained that carriers are unwilling to offer or renew homeowners

coverage in the state if there has been any claim for water damage. This

" over-- reaction " by insurers is a " knee-jerk reaction at its worst, " Mr.

Craig declared.

If a homeowner has a water damage claim, even in a brand new home, " we have

to go to the specialty market, " he said. Whether it's an old home, new

construction, a moderately-priced home or a luxury home, he said insurers

see no difference in the risk, asserting that, " it's just a broad-brush

underwriting criteria that ... [carriers] use for anything. "

Much of the problem lies in the drive for more energy-efficient homes. Bo

Gilbert, director of government affairs for the Independent Insurance Agents

of Texas, in Austin, said that in the 1970s, U.S. homeowners clamored for

more energy-efficient homes. In response, builders started constructing

homes that were increasingly insulated. The houses have become so airtight,

Mr. Gilbert said, that moisture cannot escape from within the walls,

creating the ideal environment for mold growth.

Doig, a producer and former partner in KIA Insurance Associates, a

retail insurance brokerage in Bakersfield, Calif., said he, too, is finding

it difficult to place coverage for anyone who is not an existing client

merely changing homes. Insurers are demanding to know whether a new client's

home has had any water damage claims within the past five years, a measure

he considers " extreme. "

Instead of outright rejecting an applicant, a carrier might insist on

evidence that the water damage has been completely remediated, he said,

although even this may not be enough.

Mr. Doig related a story of a client whose plumbing broke while he was away

for some time, flooding the house until his return. " They had to tear out

dry wall, pull up carpeting, flooring, everything, " be said. Although the

claim occurred over two years earlier, insurers refused to write a policy,

he noted.

At the same time, Mr. Doig observed that for-insurers, " it's less about mold

and mildew than about the high cost of repairing homes, which is the result

of remodeling upgrades. " He explained that homeowners might replace kitchen

tile countertops,with expensive marble or granite, and ordinary ranges with

top-of-the line models, substantially increasing the cost of remediation.

Homeowners who have had claims can find coverage in California's standard

market, Mr. Doig said, but at a cost. " We tell people to buy the policy for

one year, and at the end of the term we'll go out and shop for them again

and maybe find them a less expensive policy. "

Additionally, before a client files a claim. " we first ask how serious it

is. " If it amounts to between $300 and $500 in cleanup costs or

dehumidification, " we then caution that filing a claim... may be the kiss of

death as far as either retaining an existing policy or getting another one, "

Mr. Doig revealed.

Further complicating the picture, he added, carriers are saying they are

being more conservative in underwriting due to the state of the economy and

the stock market. When both are doing poorly, insurers lose money, Mr. Doig

explained, prompting them to become more conservative in their underwriting

standards. help members through this period in Texas, the HAT has set-up an

" Agency Mold Action Kit " on its Web site (www.iiat.org). The kit includes

sample letters for helping homeowners understand the insurance market;

customer acknowledgments of reduced coverage letters on sales of standard

HO-A (homeowners named-risk) coverage and of surplus lines coverage for HO-B

(homeowners broad coverage) or HO-A; a monthly graph of the cost of mold

claims; and mold mitigation tips for customers.

The association has seen " a significant increase in the number of hits " on

the mold portion of the Web site, Mr. Gilbert said, and it's no small

wonder. rs in Texas are generally moving away from offering the HO-B

to reduce their losses, he said, while others are using some form of

modified named-perils policy, he indicated.

Texas also is seeing substantial rate increases accompanied by reduced

coverage, Mr. Gilbert pointed out, adding that he hears of premium increases

ranging from 50 percent to as high as 300 percent. That includes keeping the

HO-B but excluding coverage for mold, he said.

The most difficult homes to insure in Texas, he noted, are those that are

more than 20 years old. Although they may be less airtight than newer homes,

their plumbing is more likely to leak, he observed.

Before insuring an older home, insurers in Texas now frequently require a

personal inspection of the premises and sometimes a certification from the

inspector that the home has no leaks. This is in sharp contrast to the

normal practice in which an agent has " prior binding authority, " Mr. Gilbert

noted.

Texas producers are placing more and more business in the surplus market,

Mr. Gilbert said. In fact, it is virtually impossible to find coverage

elsewhere for a home that has had water damage loss and is new business, he

stated.

He further stressed that with so many homeowners insurance forms now

available in Texas, agents must be careful to explain the different policies

to consumers. By making sure consumers are aware of what they are

purchasing, agents protect themselves from professional liability claims, he

noted.

Copyright National Underwriter Company Jun 24, 2002