Realty Times December 18, 2003

Homeowners Insurance Shopping Update
by Broderick Perkins

Buying homeowners insurance for the first time? Renewing your policy? Trying to increase coverage? Thinking about filing a claim?

Think again.

Obtaining and retaining homeowner insurance isn't what it used to be. Moisture and mold, mounting natural disasters, and perhaps even California's fires could play a role in your coverage and what it costs.

Experts are advising a staunchly proactive approach to keeping your most valuable asset well protected from damage or loss.

Here's the most current advice for acquiring and retaining insurance for your home.

  • Get "preapproved" for homeowner insurance. Just as home buyers need to make sure they have the financing necessary to buy a home -- before they go shopping -- they also need to make sure they can find the insurance they need in the neighborhood where they are shopping. There could be new policy moratoriums in areas where disasters have hit.

  • Seek full disclosure. If a home is difficult or costly to insure because of its location or history of claims, age or other factors and the seller is aware of that condition, the seller may be legally obligated to disclose it, depending upon laws in your state. While there is no law specific to insurance claims disclosure, disclosure is required when there is some condition that could affect the value or salability of a property.

    "(The problem) might have been remedied, but if there was a problem, you may have to disclose it," says Mike Donohoe, president of the Santa Clara County Association of Realtors in San Jose, CA.

    A home with many insurance claims or repairs that could indicate the need to file claims later, may affect its salability and as a result its value. Even if there is no disclosure about insurance claims or conditions that could spark them, potential buyers should ask the seller directly about any insurance issues. Buyers should also consider property inspections to discover potential problems.

    "Property inspections can help prevent possible conditions that could lead to water-related claims and they can identify any active problems. Significant water damage or active water leaks can be identified by a competent inspector. This is why general home inspections are not only desirable prior to purchase but are a good idea on a periodic basis -- maybe every three to five years," said John H. Kunz, of John Kunz & Associates in Hollister, CA.

  • Check a home's record of claims. If a homeowner honestly isn't aware of previous insurance claims he or she obviously can't disclose them. "CLUE" knows better. CLUE is the Claims Loss Underwriting Exchange, a database for insurance claims available from Alpharetta, GA-based Choice Point, an identification and credential verification service.

    When a customer files an insurance claim or inquires about filing a claim, it gets reported to the CLUE database. Insurers use the database to decide whether to issue a new policy, renew or raise rates.

    California state law, and perhaps others, prevents insurers from using CLUE inquires alone in adverse underwriting decisions, but the reports can tell a potential buyer what to expect when attempting to insure a specific home.

    Only the homeowner can obtain the CLUE report, but buyers have the option of making a home sale contingent upon receiving a copy of the CLUE report from the seller and accepting the results.

    "CLUE is full disclosure and something that consumers should demand. We recommend it as part of transactions. It's not a statute, but real estate agents are requesting it," said Peter Moraga, a spokesman for the Insurance Information Network of California.

  • Upgrade your home. Modernize heating, plumbing and electrical systems to reduce the risk of fire and water damage and related insurance claims. Eliminate deferred maintenance on systems that could trigger an insurance claim. Earthquake retrofits, fire resistant building materials and other structural bulking-up also add marketing value when it's time to sell.

  • Determine what coverage is adequate, including maximum payouts and deductibles. Shop for enough coverage to avoid a major financial loss in a fire or other catastrophe. Most homes are under-insured because market values have grown, owners have conducted value-boosting home improvements and they hold more possessions.

  • Shop for replacement cost coverage, not home value-based coverage. True replacement cost coverage is based on what it will truly cost to rebuild a home and replace its contents at current prices. Home value-based coverage can fall short of that amount.

  • Cut costs. Reduce costs by raising deductibles to affordable levels. Small discounts are available for home fire safety and security systems, but check with the insurer before buying or installing such systems. Even without a discount, consider the extra layer of protection and value the systems provide. Also, buy multiple policies (auto, life, health, etc.) from one company for an additional discount.

  • Clean up your credit act. Insurers increasingly use credit-based insurance scores to set premiums and to approve or reject new and renewed policy applications.

  • Understand what's necessary to file a claim and what can happen to your policy if you do. Keep detailed property and contents records with both written descriptions and visual records, say, photographs, video tapes or digital images to document property conditions and the scope of its contents.

    "Generally, most insurance agents I have talked to about this topic have indicated that it is a good idea, if the water-related claim is small, not to submit it due to the CLUE report and the potential hurdles it can create down the road," said Kunz.

    "I think that the insurance industry should soften their position a little with regards to this CLUE report. With a competent water damage restoration, air sampling before and after (mold testing), I feel their risks are lower," he added.

  • Get help from an independent insurance agent. He or she can search multiple companies and should be aware of a company's current rating with A.M. Best Co., Standard & Poors or other firms that rate insurers based on their financial status -- an indicator of how they can handle widespread claims after a disaster.

  • Get more assistance and stay informed about the latest homeowner insurance issues by visiting your state or jurisdiction's department or office of insurance. Additional resources are available from the Insurance Information Institute and Insure.com.

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