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Home Owner's Insurance Issues
by Dr. Oneida Cramer

In the Bible, Leviticus chapter 14, are references to mold in homes and directions as to how to clean the house and get rid of the mold, said Texas Insurance Commissioner, Jose Montemayor to a large crowd at the Town Hall Meeting held recently at Hillcrest High School by invitation of State Senator John Carona. In a presentation lasting less than two hours, Montemayor described the development of the current mold situation, outlined what the Texas Department of Insurance has done to help correct the problem, proposed some direction for future regulation, and answered written questions from the audience. Here are a few highlights from that meeting.

Historically in Texas, wind and hail made up the larger components of home insurance claims. Prior to the advent of mold testing and remediation, an average water claim, statewide, was about $3500, and the clean up process consisted mostly of removing wet carpets and wet walls and fixing the plumbing leak and putting in new carpets and new walls. Mold has always been associated with water problems although mold issues were usually excluded from water damage claims.

Still, there have been provisions in the standard insurances policies (the HB-O policies that make up 95% of homeowners insurance policies) covering mold remediation. In fact, Texas insurance policies have provided, in the past, generous coverage for homes, and Texas is the only state in the country that covers mold damage, according to Montemayor. Such policies had been in place for some time.

Suddenly water claims jumped from 1,050 in the January-March 2000 quarter up to 14,706 in the October-December 2001 quarter, and costs rose from $14.4 million to $300 million. By 2001, water damage surpassed wind and hail damage, and mold cleanup was now a part of water damage claims.

Montemayor cited a number of factors contributing to the sudden increase in claims?one being a greater ability to detect and measure mold and another being the use of new materials and procedures in construction that may be more susceptible to mold growth. Media coverage of the court case in Travis County of a family?s mishandled mold claim contributed immensely to publicizing the issue. And new terms like ?toxic mold? and ?killer mold? sensationalized mold and cast an element of fear on what used to be considered just an annoyance.

?People are convinced that this (mold) is hazardous to them,? Montemayor said. Yet, it?s rare that people are allergic to mold, the most susceptible groups being the very young, the elderly, and those people with suppressed immune systems. But testing and remediation systems would treat an infected home as if it were a hazard by having the whole family move out of the house and leave everything behind because it might be contaminated.

The proliferation of the testing and remediation industry is, in fact, a contributing factor to generating the crisis, according to Montemayor. This industry has no clear standards, guidelines, or certifications, and anybody can change the sign on the truck and advertise as a mold specialist.

Another factor contributing to the high costs of claims was an ambiguity in the policies that allowed for ?stacking,? where a single home could have multiple claims for damage in several areas of the house, all stemming from a single problem. Stacking made it possible for homeowners to recover more costs in damage than the value of the original home. That ambiguity has now been corrected, according to Montemayor.

When The Texas Department of Insurance became aware of the mold problem in 2000, they set up hearings and began to address the issues based on what they learned. A mobile advisory task force was put together to address insurance claims delays. Another issue is ?credit scoring,? used by some insurance companies for selecting policyholders; that issue is now in discussion. To keep informed of this and any other new bulletins, go to Possible cases of fraud are also being investigated and prosecuted. And there is now an effort to remove the high price procedures of remediation and testing associated with water problems in order to go back to the basic water damage coverage. For customers who want mold coverage, they can get that as an option.

The three top insurance competitors in Texas?Allstate, State Farm, and Farmers?control 66% of the market, according to Montemayor. Yet, an additional 122 insurance companies actively sell homeowners insurance in Texas although each company occupies only a fraction of a percent of the market. So, when one company stops selling new business or reduces its exposure, other companies can fill that void. Go to for Homeowner Insurance Rate Guide. Another helpful site is, where homeowners can provide information to insurance companies, which in turn may get back to the homeowners with policy offers. Therefore, the capacity is there for other companies to absorb the loss should Farmers Insurance discontinue coverage. But there is a difference.

Before, when the product was fairly standardized, homeowners would compare just price and service, regardless of the company.

?Now it?s changed; you have to do that shopping on a three-dimensional figure?what the coverage is, what the price is, and what the service will be,? Montemayor said. ?People are going to have to work a lot harder at getting their coverage.?

?We?re largely a deregulated market,? Montemayor said. ?The fact that we did have some rate freedom kept the product, at a much higher price; but we kept the insurance product available.?

So, the future will probably bring another system of regulation, one in which the insurance companies still have lots of freedom to decide the product and define the areas of service but the companies must submit their rates to the commissioner for review for fairness, at a minimum

?You?ve got to have that fairness check,? Montemayor said. ?It?s more critical now that the forms are open and will be somewhat different.?

To safe guard that homeowners aren?t left unprotected after November 1, 2002, if Farmers Insurance Group decides to discontinue coverage for 700,000 Texas homeowner customers, there is the FAIR Plan (Fair Access to Insurance Requirements), which will help get coverage for homeowners in ?underserved? regions.

In addition, the Texas Legislature will work on emergency legislation in the forthcoming session beginning in January. So, stay tuned.

-by Dr. Oneida Cramer
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