- The Washington Times - Sunday, May 4, 2003

Homeowner’s insurance, a routine part of the homeownership process, has become increasingly harder to obtain and maintain.

Insurance companies are more reluctant to take risks, and industry analysts say insurers are more selective in deciding to whom and where they will write policies.

Increased catastrophes, expensive home repairs and steep settlements awarded to homeowners — primarily blamed on lawsuits over mold — have prompted insurance companies to take a close look at the number and types of homes they cover, often deciding to regroup and downsize to minimize losses, industry experts say.

“The insurance industry has suffered losses in the stock market and lost big court cases for mold claims,” says Patricia Vucich, a Realtor with RE/MAX Realty Services in Bethesda. “Some insurance companies are creating a database of addresses that have made claims.”

A significant problem, real estate professionals say, is that consumers aren’t aware that their coverage is headed for cancellation or nonrenewal until it’s too late and it actually happens, which leaves the homeowner temporarily uninsured and scrambling for a replacement policy.

Insurance companies have raised prices to offset poor profits and climbing costs. The average cost of homeowner’s insurance rose by about 8 percent in 2002 and is expected to rise another 9 percent in 2003, according to the Insurance Information Institute (III), a New York-based public-advocacy group.

Allstate, for example, has sought rate increases averaging almost 20 percent in about half of the country, and State Farm will no longer write new policies in several states, including Texas, California and Louisiana, according to III reports.

“A crisis in the price and availability of homeowner’s coverage could have far-reaching effects on home sales and, as a result, the economy as a whole,” III says.

Some insurance companies are choosing not to renew policies even if the homeowner has made only one claim within a year.

“Insurance companies are taking a harder look at risks. A company may not renew because the homeowner may have had too many claims and it’s simply not a good deal. [Sometimes] it has nothing to do with the individual,” says Jeanne Salvatore, vice president of Consumer Affairs at III. “For example, a company may have written a lot of policies in a coastal area and has decided to cut back or not take any new business in that area.”

Buyers who think they have secured insurance can’t always be sure they will have the coverage needed when it comes time to close on the purchase of their home.

Marcia Salkin, senior policy representative with the National Association of Realtors, says she is troubled to hear of situations when, mere days before closing on a property, the insurance company decides not to write the policy. This forces the buyer to find insurance quickly, often at a higher rate.

Ms. Vucich says, “I had an owner who bought and paid for insurance that was later canceled because someone from the insurance company drove by the house and decided that the front steps needed to have a handrail. So this owner was uninsurable until they found a handrail.”

Insurance companies are looking more carefully at investment property, too, Ms. Vucich says. One investor was unable to assume the current policy on a property he wanted to buy, she says, despite “a long period of providing documentation and negotiating. The company that held existing insurance on the property didn’t want to insure investment property.”

“For the past year, coverage is less available and more expensive. Nonrenewals are happening more than in the past across the board,” Ms. Salkin says.

Understanding the difference between canceling a policy and not renewing one is important, according to Ms. Salvatore. “An insurance policy can be canceled if the homeowner didn’t pay, lied on the application or, by law, the company has 30 days [the length varies by state] to cancel a new policy,” she says.

Renewals, though, occur “once the term is up,” she says. “By law, either party can say ‘bye-bye’ to the other and choose not to renew.”

If an insurance policy is canceled or not renewed, it presents a challenge for the homeowner. Homeowner’s insurance is an economic necessity and a requirement for most mortgages.

Ms. Salkin says one way to speed up the insurance-finding process is to go through an independent insurance broker in which agents represent several insurers. “Many people only think of the big-name companies, but there are a lot of small, regional companies that offer homeowner’s insurance,” Ms. Salkin says. “You can check their ratings for financial solvency.”

Experts say another option is to request a list of insurers in the area from the state insurance department.

Also, consider asking your current insurance agent or company representative for assistance. If the problem does not stem from your home’s location, but rather its condition, find out what you can do to remedy the problems and bring your home up to snuff.

“Knock on a hundred doors,” says Ms. Vucich, who believes that talking to neighbors is a good way to find out who insures in the area and some of the specific risks in the neighborhood.

Ms. Salkin also advises home buyers who belong to professional groups to check with their association, which might offer insurance to members. “It’s not a guarantee because it will still have to go to underwriting, but it is an option people don’t usually think about,” she says.

“Another option is to look at non-admitted carriers. These are insurance companies regulated by the state but not as tightly regulated. They exist to provide coverage for varying situations, such as someone who lives near a dynamite factory,” Ms. Salkin says.

When all else fails, Fair Access to Insurance Requirement (FAIR) plans are offered in 29 states for people who can’t obtain property insurance in the standard market. Industry analysts say there has been a large increase in the number of people who have had to seek out this type of “last resort” insurance.

“These FAIR plans are state pools created to provide coverage where insurance companies aren’t writing. FAIR was started after the civil disturbances in the ‘60s and ‘70s, when some areas had trouble getting insured. FAIR covers many inner-city areas, wetlands or brush lands, and parts of the coast,” Ms. Salkin says. FAIR plans are offered in Maryland (410/539-6808) Virginia (804/358-0416) and the District (202/393-4640).

FAIR plans might cost more and provide less coverage than a standard policy, but they offer protection that a homeowner would not have otherwise. “The FAIR plan just provides bare-bones coverage such as in case of a fire, no liability and no theft coverage, but many times fire coverage is enough, at least, to satisfy mortgage lenders,” Ms. Salkin says.

Homeowners who want to qualify for FAIR coverage should make improvements to limit the risk of fire, theft or water damage because the FAIR administrator has the right to deny insurance coverage if conditions that make the home prone to losses are not corrected.

“Owners should do whatever they can to keep their home insurable, which means keeping it well-maintained,” Ms. Salvatore says. “If you’re purchasing a home, look at the condition of the house and ask the owner for a copy of the Comprehensive Loss Underwriting Exchange (CLUE) report. This report will show five years of claims data such as water damage or break-ins.”

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