Help Line
1/27/2005Property and casualty insurance has become a barrier to home
ownership and increasingly more expensive for residential as
well as commercial properties. It s an issue that has garnered the
interest of real estate professionals here in Ohio and throughout
the nation.
As you know, insurance is necessary to secure a mortgage, and
lenders require ongoing coverage. Without insurance, lenders
will not lend; without mortgages, the great majority of sales
transactions cannot be completed. Without continuing insurance
coverage, existing property owners cannot remain current on their
mortgage obligations and may fi nd themselves subject to expensive
lender forced-place coverage or possibly foreclosure.
Availability and affordability of insurance are critical to the
continued growth of home ownership and the real estate industry,
which has been the pillar of the economy. Home sales in Ohio and
nationally have reached record levels--with home ownership rates
shattering all-time highs.
Increases in insurance premiums are preventing some potential
home buyers from qualifying for a mortgage and buying a home;
current homeowners are also put in jeopardy by the increased
costs of insurance. The average cost of homeowners insurance
rose by about 8 percent in 2002 and jumped another 9 percent in
2003, and even higher in some states, according to the Insurance
Information Institute.
How prevalent is the insurance crisis?
Consider:
- Some buyers are getting coverage from alternative carriers not
regulated by insurance commissioners; such coverage is obtainable
only at very high rates.
- Owners of multifamily properties are facing lender demands for
additional insurance coverage, such as additional liability insurance
beyond what has been traditionally required.
- Some insurers are using new underwriting tools to limit risk; but
these new tools, such as credit-scoring and claims databases, are
being used unfairly to deny insurance to consumers.
- Despite the insurance industry claim that there is a statistical
correlation between credit and insurability, there is no statistical
research that proves a causal relationship between scores and
insurance claims.
- Insurers are using claims databases to deny coverage to individuals
and on properties for as few as one claim, regardless of
whether there was damage to a property or whether the damage
was caused by the insured. Most insurers will not write coverage
for a property with even one water damage claim. Such actions
have the potential to create a class of stigmatized properties.
The regulation of insurance is exclusively state law. However,
National Association of REALTORS has taken proactive steps to
address areas that are federally regulated and is working with state
and local REALTOR associations and outside experts to defi ne
appropriate responses at all levels.
NAR created an Insurance Task Force that made recommendations
covering the following areas: Expanding the variety of
insurance products; providing extensive technical assistance to
REALTORS ; educating members and consumers about the best
practices to deal successfully with the insurance problem; and
pursuing activities at the federal level to bring about increased
transparency to the underwriting process.
Additionally, the Ohio Association of REALTORS has convened
a group to study the issue of insurance coverage/availability in
the Buckeye State and will work at fi nding solutions to insurance
problems.
The following tips are offered to help consumers save
money and offset higher premiums:
Raise your deductible. Covering smaller losses could mean a
substantial saving on a homeowners insurance premium. Hiking
your deductible from the standard $250 to $500 could save you 12
percent, according to Insure.com, a consumer insurance website.
A $1,000 deductible can save you up to 24 percent, $2,500 can
mean a saving of up to 30 percent and a $5,000 deductible can
result in a savings of up to 37 percent. If you raise you deductible,
bank some of the premium savings so that you ll have the money
for minor home repairs.
Buy all insurance policies from the same company in order to
receive a multiple policy discount.
Avoid frivolous claims. Submitting a legitimate claim after years
of paying premiums is justifiable, but frequent claims may mark
you as a high risk. Consider paying for smaller losses to avoid
related premium surcharges or even the chance of nonrenewal.
Review your policy annually. Correct and/or update the information.
Double-check the information regarding how far your home
is from a water source such as fi re hydrant, as well as the location
of the nearest fi re station. If you carry an insurance endorsement
on an item that s depreciated, reduce or eliminate the endorsement
that covers it.
Although there are more cases of under-insuring rather than
over-insuring, make sure you land is not included in the amount of
insurance coverage you buy. Land is part of your home s market
value but does not need to be insured.
Stay with your insurer. Some insurers reduce premiums by 5
percent after three to fi ve years, and up to 10 percent if you remain
a policyholder longer.
Keep tabs of your credit. An Insurance Bureau Score (IBS) is a
snapshot of your insurance risk picture based on information in
your credit report. Some companies take insurance scores into
account when assessing a potential homeowners insurance risk.
IBS refl ects your credit payment patterns over time, with more
emphasis on recent information.
Ask about available discounts. Some companies provide
discounts typically in the 8 to 15 percent range for new construction,
since newer homes are built to updated building codes and
standards. Some insurers offer discounts for monitored home
security systems. As noted earlier, if you ve had your home insured
with the same company or agency for several years, you may also
be eligible for an additional premium discount.
To prevent losing coverage:
Protect your home against typical perils. By preventing losses
and claims, you can also help to keep the cost of insurance down.
These include: Keep fi re extinguishers in fi re-prone areas such as
the kitchen and laundry; Replace old, faulty wiring and make sure
to tell your insurer; Regularly check your roof, down spouts and
pipes for clogs or leaks; Discourage crime by using exterior lights
at night and dead bolt locks; Repair loose railings, steps or walks.
Avoid filing claims for small loses, such as those just above your
deductible.
As previously noted, on average a home owner files a claim once
every eight to 10 years. If you happen to fi le multiple claims within
a few years, you may be susceptible to being non renewed.
Educate yourself. Find out what Ohio s law is regarding home
insurance renewals. Contact the Ohio Department of Insurance at
(800) 86-1526 or on the Web at www.ohioinsurance.gov.
If you receive a nonrenewal or cancellation notice, take immediate
steps before the policy lapses. It s easier to fi nd another carrier
while you re still insured in the voluntary market. Obtain quotes
from at least three insurers so you can compare premiums and
coverage options. If you are having trouble fi nding coverage,
contact the Ohio FAIR (Fair Access to Insurance Requirements)
Plan. The Ohio FAIR Plan provides a variety of coverages, but at
higher premiums. Many FAIR policyholders obtain coverage on a
temporary basis in order to clear past claims histories or to buy
time in locating a private insurer. For more information on the Ohio
FAIR Plan, call (800) 282-1772.
If you have any concerns about insurance issues, ask a real estate
professional-a REALTOR with the Toledo Board of REALTORS for guidance. REALTORS are working hard to make your dreams of home ownership a reality.