A year ago, I warned that the cost of homeowners insurance was heading up. This year, the outlook is gloomier. You could have to revise your insurance behavior if you want to keep your coverage. Just consider: In April, State Farm Insurance, which accounts for 20 percent of the state’s home insurance market, announced a moratorium on writing new policies. Another company, 21st Century Insurance, recently said it would get out of the state’s homeowners market altogether. Last week the Insurance Information Network of California, a nonprofit trade association, reported that the sharp increase in insurance claims for household water damage in the past five years is constricting the state’s insurance market. Some carriers will not insure your home if you’ve filed a homeowners claim related to water damage in the last three years. Some insurers won’t cover the home you plan to buy if the previous owners filed a water-damage claim in the last three years.
After a decade of level premium rates and plentiful coverage, California homeowners are facing what one expert calls a "hardening insurance market." A number of recent events are spooking insurance companies, such as the enormous costs insurers bear for Sept. 11 and the loss of investment income from the continuing slump in the financial markets. In addition, the costs for replacing or repairing homes in California have risen sharply, exceeding inflation. And claims for water damage – along with the costly mold-avoidance cleanups that follow – are on the rise. In this environment, some insurers are not looking to write new business, says Pete Griffith, a chartered property casualty underwriter with C. Lee Williams & Associates in San Diego. "They’re scared to death," Griffith says. "It’s a pound of prevention for a ton of cure." Many insurers are hoping to avoid in California what happened in Texas, where carriers have been swamped with mold claims in the last few years. That led to price hikes and insurance scarcity. The industry estimates that the cost of eradicating mold has added a $147 "mold tax" to the average Texas homeowner’s insurance bill. "Mold is driving the crisis of homeowners insurance in Texas," says Pete Moraga, spokesman for the Insurance Information Network of California. "Mold has come out of nowhere."
While many homeowners have claimed that mold is hazardous to their health, as yet there are no national health standards to measure the threat. More than 1,000 types of mold occur naturally in the United States and need only the presence of water to thrive. It’s possible that today’s more energy-efficient homes trap moisture inside and create a petri-dish effect, Moraga says. Among the Californians who claim their homes and their health have suffered as a result of mold are Erin Brockovich and Ed McMahon, who says mold killed his dog. In California, says Moraga, the typical policy will cover the cost of cleaning up mold only if it stems from a "covered peril," like a broken pipe that floods a home. But a pipe or faucet that leaks over a period of time leading to mold buildup is considered a maintenance problem, like termites, to be dealt with by the owner.
Homeowners must remember that an insurance policy is not meant to cover maintenance. "Insurance should be looked at as a backstop for catastrophe," says Moraga. And in this tighter market, he says, "When you become a higher risk, you’re going to pay more for it." Unlike auto insurance, where drivers could be quoted five to seven different prices based upon their driving records, homeowners are generally categorized as preferred or not. Filing two claims in a short period, however legitimate, could prompt a cancellation. What’s a homeowner to do? "Make yourself stand out as a preferred customer," says Jim Sim, president of Westland Insurance Brokers, an independent brokerage firm in San Diego. He recommends a change of mindset. Don’t even think about submitting smaller claims for $250 or $500. Raise your deductible to $1,000. And don’t make claims for damage due to your own poor maintenance or oversight, such as letting your bathtub overflow, advises Sim: "That’s one that Judge Judy would say, ‘You’ll get canceled for being stupid.’
" Here are some other tips from the experts: Check for water pipe leaks. Turn off all faucets. If your water meter is still running, you probably have a leak. Get help from a leak detection company. Periodically check the hose to your washing machine and replace as needed. When you leave town, turn off the water to your washing machine. Refrigerator ice machines can be a serious source of leaks. Check and replace water lines. If you have a pipe leak under your slab, reroute the plumbing outside of the slab. Measure your water pressure. You can purchase a water pressure gauge for under $10, says Moraga. A desirable level of water pressure is 80 to 90 pounds per square inch, yet it can run as high as 120 psi in many Southern California homes, straining the pipes. If your water heater is inside your home, relocate it to the garage. If that seems costly or troublesome, weigh the risk of having all the water in the heater leak out while you’re away on vacation.
Don’t buy a home in an area far from a fire department. Don’t buy a home with a wood-shingle roof. Before you buy a vacation home, be aware that it can be difficult or even impossible to insure a second residence that is often vacant. Don’t keep certain breeds of dogs at high risk for attack such as Rottweilers and pit bulls. Keep rates down with discounts for multiple policies, senior citizens, no smoking and home security. If you get dropped by your insurer, offer to bring your auto insurance along to prospective carriers to sweeten the pot. Seek help from an independent insurance broker who can shop from many carriers. Remember, says Moraga, there are more than 200 companies selling homeowners insurance in California: "It’s still a competitive market. Shop around."