Causes of Homeowners Insurance Losses
Homeowners insurance provides personal property and liability
protection. A policy typically protects your home, garage and
other structures
on the property, and the contents of your home, against perils
outlined in the policy. Liability protection covers accidental
harm to others
while on your property. The policy also provides reimbursement
for living expenses if the damage caused by an insured peril such
as
a fire or tornado requires you to live elsewhere during repair
or rebuilding (click here for more
information on homeowners insurance).
Causes of homeowners insurance losses
Incurred homeowners losses for 2002 from all perils totaled $25.6
billion, down from $26.8 billion in 2001.
The Insurance Services Office, Inc. (ISO) collects data on the
types of insured losses that are filed by home owners. Table
1 provides
this information for 1998–2002 for Ohio and US.
Mold-related losses
Receiving notable attention in recent years has been the extent
of claims associated with mold. The cost of mold claims has been
the focus in many states, especially in southern and western states
where hot, humid and damp conditions provide ample opportunity for
mold to spread quickly.
According to reinsurance intermediary Guy Carpenter, there were
at least 10,000 “toxic” mold cases filed in the US and
Canada in 2001, about half of which were filed against insurance
companies for bad faith.
Because most insurers include mold claims under “water damage”
losses, costs related to mold claims has been difficult to assess.
According to the Insurance Information Institute (III), US insurers
paid out at least $3 billion in mold-related claims in 2002, more
than double the $1.3 billion in 2001.
Texas has been widely recognized as the state where mold coverage
issues began. The Insurance Council of Texas reports that the state’s
mold claims grew from $420 million in 2000 to $2.2 billion in 2002
(for 227,000 claims).
Click here for
the chart "Causes of Insured Homeowners Insurance Losses in
US and Ohio 1998-2002."
Mold coverage by insurers
Many insurance companies include language in their homeowners policies
to clarify mold coverage, its limits and exclusions.
If mold is the result of a covered peril (i.e. a burst pipe), some
insurers cover mold damage up to a stated limit or up to the limits
of homeowners insurance coverage purchased by the policyholder.
Some companies are excluding all mold claims due to extensive loss
experience.
ISO filed and received approval of its mold coverage endorsement
in most states. The endorsement provides limited coverage up to
$10,000. Some companies also offer higher optional coverage limits
of $25,000 and $50,000. ISO's mold coverage endorsement for homeowners
has been approved in 42 jurisdictions as of September 2003: AL,
AK, AZ, CO, CT, DE, Washington DC, FL, Guam, ID, IL, IN, IA, KS,
KY, ME, MA, MD, MI, MS, MO, MT, NE, NV, NH, NJ, NM, ND, OH, OK,
OR, PA, RI, SC, SD, TN, TX, UT, VT, W.Va., WI and WY. The program
in Texas is not identical to those adopted in other parts of the
country.
Mold coverage in Ohio
20 insurance companies participated in a mold coverage survey conducted
by the Ohio Insurance Institute in January 2003. The participants
represent 77.6% of state's homeowners market share based on 2001
homeowners premiums.
Results of the study show:
- Companies representing over half of the Ohio homeowners market
continue to offer coverage for mold-related claims. Coverage is
typically in the $5,000–$10,000 range. 27% of the homeowners
market exclude coverage for mold. Coverage by 23% of Ohio’s
homeowners market share is unknown.
- About 24% (based on market share) of those companies offering
mold coverage also offer endorsements for higher limits of coverage.
- Insurers representing 48% of the market adopted a mold endorsement
in the past year or plan to this year (ISO/similar endorsements/company
hybrid).
Frequency and severity of homeowners claims
Another way to view losses is by frequency and severity of claims.
Table 2 shows the average number of claims filed per 100 homeowners
insurance policies (frequency) and by average amount paid for each
claim (severity) for water damage and freezing compared to total
homeowners losses for 1998–2002.
The frequency data for water damage and freezing show the effect
of catastrophic events such as blizzards and hurricanes, which in
2000 generated a high number of claims.
Average loss data on water damage and freezing claims from 1998
to 2002 show a steady increase in the average amount paid for such
claims. Average losses are affected by the extent of the damage
and the cost of labor and materials needed to repair it.
(Portions excerpted from Insurance Information Institute)
1 For homeowners multiple peril policies. Excludes tenants and condominium
policies.
2 Claims per 100 house years (policies)
3 Accident year incurred losses, excluding loss adjustment expenses,
i.e., indemnity costs per accident year incurred claims
4 Weighted average
Source: Insurance Services Office, Inc. (ISO), from Insurance Information
Institute
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The Insurance Research Council reports that
11.5% of all homeowners file a claim annually. |
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