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INSURANCE MATTERS

By Russell C. Janecka

 

 

It Is Advisable To Review Your Home Insurance As It Renews This Year

Methods you can use to manage your risk. 

 

The fact that homeowners insurance has gone through a great change this year should no longer be news to anyone, unless they don't have TV, a radio, or get the newspaper. The politicos have been taking their shots across the bows of major carriers like  Farmers Insurance, using the industry as their whipping boy to get them elected. Rightly or wrongly, the company is being sued by the state over their numbers and how they are accounting for them. But rhetoric, and politically motivated lawsuits, only entertain the issue; they most certainly will not approach sound reasoning or solutions. It is curious that the department of insurance is suing a company, which is subjected to periodic auditing by the department. Where was the questioning auditor's attention to this matter, when he or she signed off on the suitability of Farmer's accounting? As I explained in my previous article, the market is in reaction. The home insurance loss ratios have been well into triple digits - yielding about a 125% loss for every dollar taken in of home insurance premium. That fact is not subject to debate; and the need for both a rate increase and restricting or reducing coverage are understandable. As homeowners receive their renewal policy this year, they will most likely be receiving an alternative HO-A policy in exchange for the one they had (an HO-B) up until now. These policies should be read carefully, and the agent should be called with any questions or points that are not easily understood. Most policies are being converted to a named peril (HO-A) policy from the previous open perils or "almost all risk" type policy. The effort on the part of the industry is to stem the tide of large loss settlements under the very broad water coverage that has been available under the HO-B policy. Starting Jan. 1, 2003, the HO-B policy must be made available in Texas. The revised HO-B policy no longer covers mold remediation beyond what is necessary to repair or replace the property damaged. This new policy only covers mold when it results from sudden and accidental discharges, leaks or overflow of water. Mold caused by hidden and undetected water damage is covered if reported within 30 days of detection. Under the revised HO-B policy, however, insurance companies must offer policyholders the opportunity to repurchase full mold remediation coverage, at added cost, in amounts of 25 percent, 50 percent and 100 percent of their policy limits. Those who have HO-A policies (named perils coverage) will not be provided this option, but it should be remembered that prior to 1999, no one cared or needed this coverage. Homes that are adequately maintained by responsible homeowners should not worry about the absence of this coverage. At present, due to the high losses and due to a market scramble from one company to another due to rate increases, many writers of insurance have put a moratorium on new business. It is hardly possible to buy an HO-B at this time, and nearly impossible to shop your insurance if you have had a recent accidental water claim. This has put some pressure on an otherwise strong real estate market, driven by lower interest rates and some promise of a bottoming of the current recession. By taking the necessary actions to stem the tide of extraordinary loss payments and replace company loss reserves due to these losses should be sufficient to turn the market. This, in turn, will give companies the desire to return to writing new business and offering discounted rates to worthy risks for proven actuarial reasons. We could all use some relief from the current market woes. A turn in the stock market would also be welcome about now.   Russell Janecka is a Certified Insurance Counselor. He is the owner of Janecka Insurance Agency in Victoria, and serves on the board of directors with Germania Insurance Companies. Call with your questions. (361) 573-4475 e-mail: reply@jiavic.com  © Copyright: Russell Janecka