As the busy spring real estate season opens in just a few weeks, smart buyers are doing their homework by getting loan pre-approval, scouting out neighborhoods, and getting a realistic idea of how much house they can afford. But now there's another item to put on the to-do list - make sure you can get homeowners insurance.

Just a few weeks ago National Association of Realtors President Cathy Whatley told a group of reporters at the National Press Club that homeowners insurance premiums and the lack of available coverage have become significant barriers to homeownership. Most affected are those who have no credit history and existing homeowners who have water-related claims, she said.

Whatley questioned insurers' use of credit scores and the Comprehensive Loss Underwriting Exchange database, which holds claim histories of individuals and properties for five years. Insurance companies share this database in determining whether to insure you and your property. So even if you've owned a home and have been a loyal insurance customer for a number of years, if you buy a house that comes up with a number of claims against it, you may not be able to get insurance if you buy it.

NAR says insurance companies have reduced the number of policies they are writing; one of the largest companies did not write new policies in 30 states late last year, and is only now returning to some of those states.

Also, companies are tightening underwriting criteria for potential policy owners and properties themselves. Some insurers are not renewing coverage for homeowners with poor credit or who file too many claims. And underwriting requirements on properties have been tightened to ban properties with prior water damage.

The Insurance Information Institute says the average cost of homeowners insurance increased by 8 percent last year and is expected to rise another 9 percent this year. But many homeowners have seen increases ranging from 30 to 70 percent.

The insurance industry says the increases stem from a variety of factors, including catastrophes like Hurricane Andrew and the Northridge Earthquake that occurred in recent years. Over the past 12 years insurers paid out more than $100 billion in catastrophe-related losses-about $700 million per month-many times more than in previous decades.

Another contributor is mold. Multi-million dollar jury awards, sensationalized reporting in the media and profiteering by some individuals have led to an explosion in mold claims and costs, the III says.

In Texas, for example, mold claims in 2001 cost insurers more than $850 million compared to virtually nothing just a few years earlier. Water claims accounted for 32% of all claims in 2001, up from 24% in 1997.

Meanwhile, Whatley advised potential homebuyers to make homeowners insurance a priority when house hunting.

"In light of today's insurance crisis, homebuyers should not take their insurability for granted," she said.

Just because you and your spouse have an unblemished insurance record, that doesn't mean the house you're eyeing does. When an insurance company considers whether to offer you insurance, they're not just looking at your history, but the history of the property in question.

One way to examine the house's claims history is through its CLUE report. About 600 insurers, making up about 90 percent of the market, feed into the CLUE database. The report will show you every claim filed over the past five years.

The database covers 27 types of losses, including dog bites, flood, earthquake, theft, vandalism, wind, and medical payments. You can order an electronic report from Choicepoint, the company that owns the CLUE database, for $12.95 by visiting Choicetrust.

One caveat: you can't order a copy of a report unless you own the home. Prospective buyers can't request a report directly from Choicepoint.

"But there's nothing stopping you from asking the homeowner to provide you with a copy as a condition of the sale," Texas real estate broker Karen Wilson told insure.com.

You would then be armed with the information you need to shop around for insurance and determine whether your would-be house is insurable. If it's not, you can back out of the deal -- if you make it a condition of the sale.

Choicepoint vice president Richard Collier said the reports could also indicate factors that can be attractive to buyers.

"If you're buying an older home and the roof was replaced because of storm damage, you may be very happy knowing you are getting a newer roof," he said.

In the meantime, the III offers additional tips for saving on homeowners insurance:

Maintaining good credit will also help you save on home insurance.

Also, because insurance companies use your credit history in determining whether to insure you and what rate, you should get a copy of your credit report to make sure it's accurate.

Published: March 11, 2003

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