HOMEOWNERS HAMPERED BY HARD-TO-GET INSURANCE

This article is a re-print from the San Jose Mercury News from November 11, 2002. We believe that it is a "heads-up" story about an issue to be considered early in the escrow process... Please don't wait until the week before you want to close escrow to establish insurance.

The turmoil in the insurance industry is hitting home.

Bay Area homeowners face increasing costs for property insurance – and that's if they can get coverage through normal channels at all. The state has approved rate increases of 14 to 21 percent so far for the three largest carriers. And insurance companies – more risk-averse than they have been for years – are faster to reject new applicants and drop current customers.

The result is that the overall cost of Bay Area homeownership – already steep – is rising. And because mortgage lenders require insurance before they'll make a loan, the tightening market could slow home sales.

"If you don't have a new roof, if you don't have new copper pipes and if you have any claims, they don't want to insure you,'' said Jonna Rossi, a graphic designer who bought a house in San Jose this fall with her husband, Scott.

Six carriers rejected the Rossis, citing everything from an old roof to lack of copper plumbing to the numerous insurance claims filed by previous owners. When they finally found coverage, their annual premium was $1,400 – more than double what they'd been expecting.

Homeowners are just the latest group to share the pain of rising insurance rates, which have hit everyone from big corporations to small businesses.

Rates held steady through most of the past decade because insurance companies wanted to win market share, and they balanced losses from claims with stock-market gains. When the stock market fell, rates rose.

Add to that the impact of the Sept. 11 terrorist attacks, and the specter of mold. Homeowners have successfully argued that so-called "toxic mold'' in homes has caused serious health problems – the biggest lawsuit garnered $32 million for a Texas homeowner.

"We're at the fringes of a crisis,'' said Brian Sullivan, editor of a trade publication, the Property Insurance Report. "Most people will tell you it's because of mold. It's not because of mold, it's because of the fear of mold.''

The state has approved $574 million in premium increases through the third quarter, including those by the three largest carriers, State Farm, Farmers and Allstate.

Insurers are also looking much more closely at CLUE (Comprehensive Loss Underwriting Exchange) reports, which show how many and what kind of claims a home has had in the past five years.

Homeowners can obtain such reports for their own property, but for privacy reasons, buyers cannot order reports for someone else's house. So some real estate agents are now suggesting that sellers order CLUE reports upfront to show prospective buyers.

The Rossis learned after they bought their home that the CLUE report showed several claims – part of the reason their former insurer, Allstate, opted not to renew a temporary policy on the house.

Both the California Association of Realtors and the National Association of Realtors have recently formed task forces to study insurance availability. The latest version of CAR's purchase contract, released last month, contains a new clause telling home sellers to disclose any known insurance claims in the past five years. Some real estate agents are advising clients to seek insurance the minute they enter escrow, or make their purchase contingent upon getting insurance.

"We're used to getting on the phone the day before escrow closes and getting insurance,'' said Steve Hanleigh, president of the Santa Clara County Association of Realtors. "It doesn't work that way anymore.''

Real-estate professionals fear that the tight insurance market could dampen home sales, one of the few robust parts of a sluggish economy. State Sen. Jackie Speier will hold a hearing on insurance availability next month. And property insurance is likely to be among the most important items of business for newly elected Insurance Commissioner John Garamendi, who starts his job in January.

The California Department of Insurance says the most frequent complaint to its hotline this year is from homeowners whose coverage will not be renewed.

Karon and Michael Raffee learned this summer that the policy on their 16-year-old house in Pleasanton would not be renewed because they had filed three water-related claims in five years.

"Nobody ever said if you file a third claim your policy may be dropped,'' said Karon Raffee. She and her husband would have fixed the source of their most recent claim, a water-spewing dishwasher, without insurance money if they had known.

Omar Morales of the Insurance Information Network of California cautioned that homeowners policies should be reserved for serious losses, not viewed as a way to pay for home maintenance. "You know how when you have a car accident you just know that your auto insurance is going to be affected? People need to understand that same thing with their home,'' Morales said.

There are no industry standards that say how many strikes you get before you're out. This year, sometimes all it takes is one claim in the first year of coverage, said Loretta Montgomery of CAL Insurance and Associates in San Francisco.

Those who can prove they've been rejected repeatedly can turn to the California FAIR Plan (Fair Access to Insurance Requirements), a state-mandated, insurance-industry-sponsored program of last resort. The plan provides fire coverage only – much less than most homeowners policies.

Applications for FAIR Plan coverage have increased about 50 percent from last year. What's more, about 86 percent of those covered through FAIR are staying in the plan for more than a year, a record-high amount.

Things are bad for homeowners, but condo owners have it worse.

Premiums for homeowners associations that have filed water-related claims have risen between 100 and 400 percent, said Dave Anderson of Thompkins & Co., brokers in Alameda that find insurance for community associations.

"It's a crisis, but in the insurance business you have ebbs and flows,'' he said. Insurance will be expensive for another year or so, until companies recoup some of their losses and start writing more policies. When supply goes up, prices will fall again, he said. "Just like a gallon of gasoline.''

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