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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
According to the Insurance Information Institute, 2003 incurred
homeowners losses from all perils totaled $25.7 billion, almost
level with 2002’s losses of $25.6 billion. Homeowners losses
in 2001 totaled $26.8 billion.
The Insurance Services Office, Inc. (ISO) collects data on the
various types of insured losses that are filed by homeowners. Table
1 provides this information for 1999–2003 for Ohio and US.
Percentage changes from one year to the next are partially influenced
by large fluctuations in the number and severity of weather-related
events such as hurricanes, tornadoes and winter storms.
Mold-related losses
Insurance claims associated with mold have been receiving attention
in recent years. 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 1999-2003."
Mold coverage by insurers
Many insurance companies now include language in their homeowners
policies to clarify mold coverage, its limits and exclusions. Coverage
can vary by company. Some insurers may decide to cover all mold
claims and price the policy accordingly. Others may exclude mold,
but offer a policy endorsement that allows coverage to be added.
Still other companies may provide a tighter definition of what is
and what is not covered or may prefer to create an absolute exclusion.
Most major insurers have announced some form of restriction on writing
water damage policies
From the insurance perspective, damage from mold, like rust, rot
and mildew is specifically excluded in standard homeowners and commercial
property policies. If mold contamination is the result of a covered
peril (i.e. water from a burst pipe), some insurers cover the damage
up to a stated limit or up to the limits of homeowners insurance
coverage purchased by the policyholder.
Mold caused by water from excessive humidity, leaks, condensation
or flooding is a maintenance issue for the property owner (like
termite or mildew prevention) and is not covered by the policy.
Most property owners routinely clean up mold before it grows large
enough to become a hazard. Caught early, mold usually can be removed
by a thorough cleaning with bleach and water.
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 about 78% of state's homeowners market share.
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 excludes 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 1998–2003.
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 2003 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 Factbook
2005)
Click here for the chart "Causes of Insured Homeowners Insurance
Losses in US and Ohio 1999-2003."
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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27% of homeowners have made at least one claim
on their home or condo policy in the past 10 years.
(Insurance Research Council 2003 study)
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