Insurance: Housing's black plague

December 5, 2002

Shortage of homeowner policies threatens to dampen sales

By Susan Romero
Inman News Features

Thomas Morgan, associate general counsel for the Texas Association of Realtors, concisely sums up the state of the homeowner's insurance marketplace as many brokers and home buyers see it today: "(Insurance) is too expensive and there's not enough of it."

Morgan is in a good position to know. Texas for some time has been the poster child state for insurance industry woes that now appear to be spreading across the country.

Real estate brokers aren't yet yelling "crisis." But practitioners increasingly are reporting that buyers are facing serious and worsening difficulties in obtaining the homeowner's insurance they need to close their home purchase transactions, comply with mortgage lender requirement for loan funding and protect what is likely their most valuable asset. An inadequate supply of affordable insurance would put the free flow of the housing market itself in jeopardy.

The obstacles buyers face in their pursuit of homeowner's insurance no longer are shaped solely by the location of the home or the local area's predisposition to natural disasters. Instead, insurers are citing a wide variety of reasons for cutting coverage and raising premiums, experts say.

Donna Giarardot, governmental affairs director for the Wilmington Association of Realtors in North Carolina and executive officer for the Wilmington-Cape Fear Home Builders Association, offered some examples. She said some companies are refusing to write coverage for homes with older roofs. Others are turning down homes because one or more claims for any reason at all were filed during the prior three years. Some insurers now have monthly quotas that limit the number of new policies. Others will write a new policy only if the buyer also purchases an auto insurance policy. And some insurers even are using the buyer's credit score to evaluate the buyer's risk potential.

Giarardot couldn't quantify the effect of limited availability and higher prices for homeowner's insurance on the real estate market in Wilmington, but she said that it was a "significant problem" and that insurance shopping has become "a very frustrating drill."

"It's taking an awful lot of time for agents and homeowners to find coverage at any cost. Our main problem is just availability," she said. She added that fewer than 10 insurance companies are writing new policies in the state's 18 coastal counties.

And coastal North Carolina isn't alone. Marcia Salkin, a senior policy representative for business issues with the National Association of Realtors, said finding affordable insurance is a growing problem in virtually every state. Salkin is the NAR staffer assigned to the association's new insurance task force.

"I've been collecting news accounts, and at this point there are very few states where I haven't been able to pull up an article that hasn't made mention of the fact that premiums are skyrocketing and things are getting difficult," she said.

Whether obtaining homeowner's insurance will become even more difficult remains to be seen. But the insurance industry isn't showing any signs of loosening its underwriting practices or lowering its premiums.

Insurers say they can't afford it. The industry last year paid out $8.9 billion more in losses and expenses than it earned in premiums and premiums are expected to rise another 9 percent in 2003, according to the Insurance Information Institute, anon-profit organization supported by the property and casualty insurance business.

Some homeowners already have seen premium hikes of 40 percent or more.

Pat Campbell-White, a broker/agent with RE/MAX Realty Group in Rehoboth Beach, Del., has seen premiums escalate in that coastal region as well.

She said condominium owners in one 11-unit complex had to find a new a property and casualty insurer after their former insurer went out of business. The new premium nearly tripled from $468 to $1,125 per unit.

"We shopped around for another carrier and (that premium) was the best we could do. More (insurers) turned us down than were willing to (write a new policy)," said Campbell-White.

Copyright: Inman News Service

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