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Realtors yell insurance crackdown

January 27, 2003

Tight homeowners market hit with cries for more regulation

By Susan Romero
Inman News Freatures

Real estate brokers and agents are demanding legislation that more tightly regulates homeowners insurance providers and their underwriting practices.

Without a homeowners or property insurance policy, home buyers can't secure the financing they need to close the real estate transaction. But securing such policies today is becoming an issue for some home buyers because property and casualty insurance providers are tightening their belts, writing fewer policies and raising premiums in an effort to remain solvent in the face of rising claims costs and stock market investment losses.

Realtors in California, Arizona and Texas are among those confronting head-on the difficulties presented by conservative underwriting practices that threaten to stall and in some cases derail home purchase transactions.

"Insurance scores" formulated in part with information gathered from consumer credit records and Comprehensive Loss Underwriting Exchange claims data are under scrutiny. Some believe the information is misused by the insurance industry and the result stigmatizes individuals and properties as being difficult to insure or high risk.

The Arizona Association of Realtors plans to address the impact claims data in CLUE has on homeowners insurance availability via a three-pronged legislative effort, which includes as many bills, and plans to look into another piece of legislation that addresses underwriters' use of credit scores.

According to AAR, home buyers in Arizona too often are closing real estate transactions with homeowners insurance binders in place of actual homeowners insurance policies that later are canceled after a CLUE report reveals a previous claims history of some sort on either the applicant, property or both.

One of AAR's bills would require insurance underwriters to check the CLUE database before issuing a binder and subsequently would prohibit the insurance carriers from canceling a policy for reasons contained in the CLUE database that could have been surmised prior to issuing the binder.

"The insurance companies need to check their own CLUE database, which is available to them instantly, instead of relying on statutes that allow them to cancel coverage for any reason," said AAR's VP of Government Affairs Tom Farley.

Another piece of AAR-sponsored legislation would prohibit homeowners insurance companies from raising premiums based on a consumer's history of claims in which no damages were paid.

And the third bill would prohibit carriers from denying or canceling a homeowners insurance policy because of a previous claim for damages that are no longer covered. For instance, a homeowner who'd filed a water damage claim couldn't be dropped or non-renewed because of the property's predisposition to mold damage if the insurance carrier doesn't cover mold damage.

Farley said the association drafted three separate bills in an effort to make it more difficult for the insurance companies to kill any one item.

"They're going to have to shoot at all three, maybe four," said Farley. He expects all of the bills to be finalized and on the state senate's floor sometime during this legislative session.

The Texas Association of Realtors' hasn't drafted any legislation of its own, but TAR Associate Counsel Thomas Morgan said more than 30 bills that address various insurance industry issues are pending in the state and that he expects one bill to rise to the top of the pile and include all of the issues TAR backs, which include the following list of reform measures:

The Realtors group plans to back legislation that prohibits insurance underwriters from considering consumer credit scores and that would limit insurers' use of CLUE data; regulates homeowners insurance providers' rate increases; requires insurers to disclose in layman's terms a policy's contents; requires insurers to submit to the insurance commissioner a withdrawal plan before pulling out of the state; mandates licensing requirements for public insurance adjusters and mold remidiators; prohibits homeowners insurers' 90-day right of recision; mandates insurance agent agency disclosure.

The California Association of Realtors' VP and General Counsel June Barlow echoed Farley's and Morgan's concerns and said insurance availability in California is a "practical problem."

Like Arizona, Texas and many other state Realtors associations, C.A.R. has developed and insurance task force that plans to "aggressively" look into the topic. But the group met for the first time last week and Barlow said it was premature to estimate what its recommendations would include.

In October last year C.A.R. modified the state's standard purchase contract to include a homeowners insurance contingency. The contract also requires the home seller to disclose any insurance claims made on the property in the last five years.

"Homeowners of this state need to be able to get insurance and also feel comfortable filing the real claims that they have and to get coverage on those claims without fear of cancellation or huge premium increases. (This) is of great concern to all homeowners, whether they're in a real estate transaction or not," she said.

Copyright: Inman News Service

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