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SACRAMENTO, Calif. 04/11/2002 (BestWire) - California might follow in Texas' footsteps in requiring insurers to cover mold claims--a move that could cause premium rates to skyrocket, trade groups said.
The California Senate's Insurance Committee is scheduled to discuss a bill April 16 that would prohibit both commercial and personal insurers from seeking exclusions on mold coverage as an ensuing loss, or a loss that followed a covered peril, such as a fire or a broken water pipe, said Nicole Mahrt, a spokeswoman for the American Insurance Association.
That proposal doesn't go as far as Texas did in requiring insurers to cover all mold losses, even those stemming from routine maintenance issues, Mahrt said, but insurers still are concerned about the potential cost. Insurers also are concerned that commercial and property insurers are being lumped together in the legislation.
"We need to look at it more, but as it stands, we'd be opposed to the legislation without amendment," Mahrt said.
She said one commercial writer said it has had 300 mold claims amounting to $26 million in liability costs in nine months. That's liability costs, not property damage, Mahrt noted.
"It's gotten out of control. It's becoming like earthquake coverage, where you can't predict the loss, and you can't price the product," Mahrt said.
California has the second-highest number of mold-related claims in the country, second only to.
Texas, according to the Personal Insurance Federation of California, a trade group that represents personal-lines writers. Texas now has the most expensive homeowners rates in the nation, and California's rates could rise to Texas' levels if similar legislation is adopted, the federation warned (BestWire, April 5, 2002).
One federation member company said the average home it insures in Texas is valued at $131,000 and is charged $1,400 a year in premiums. The same company's average home in California is valued at $213,000 and is charged just $625 a year in premiums. If California mandates mold coverage as Texas did, then the average homeowners rate in California could grow to $2,300, the federation said.
Several companies in California have asked to raise their homeowners rates--saying they are seeing a higher number of water-damage claims (BestWire, Jan. 23, 2002).
State Farm Group, the largest writer of homeowners insurance in California, is seeking another 6.9% increase in homeowners rates. It received a 6.9% increase last year. Interinsurance Exchange of Auto Club, the insurance arm of the Automobile Club of Southern California, also has filed a request to raise rates. Interinsurance Exchange is seeking a 6.6% rate hike, according to the California Department of Insurance.
Zurich/Farmers Group, the second-largest writer of homeowners insurance in the state, has been able to raise its rates by 25.7% since January 2000 by requesting several increments of 6.9% or 5%. Zurich/Farmers currently has another 6.9% increase pending, which would mean its policyholders could pay 32.6% more for homeowners insurance this year compared with two years ago.
Allstate (NYSE:ALL), the third-largest homeowners insurer in the state, is seeking a 22.3% increase, according to a request filed with the insurance department (BestWire, Jan. 2, 2002).
Earlier this year, 21st Century Insurance Group (NYSE:TW) said it would stop writing homeowners insurance in California altogether (BestWire, Jan. 7, 2002). It had a 6.9% increase approved in 2001, and it had applied for a second increase of 28% later in the year, according to the Foundation for Taxpayer & Consumer Rights.
California could be the first state to establish exposure limits on toxic mold. Under the Toxic Mold Protection Act, the state Department of Health Services will form a task force to study the mold problem and see whether it would be possible to adopt exposure limits and a protocol to remove toxic mold from homes. The task force is expected to report back to lawmakers by July (BestWire, Dec. 26, 2001).
State Farm had a 22.1% share of homeowners multiperil coverage in California, according to A.M. Best Co. State/Line product information for 2000. Zurich/Farmers held a 19.6% market share, while Allstate had a 15.4% market share.
State Farm Group is rated A++ (Superior) by A.M. Best Co., although its California-only subsidiary, State Farm General Insurance Co., is rated B+ (Very Good). Interinsurance Exchange of Auto Club, Allstate Insurance Co. and 21st Century Insurance Co. are all rated A+ (Superior). Farmers' Aħ rating is currently under review.
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