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Homeowner's Insurance: A Threat To Homeowners

by Benny L. Kass

Q: We have owned our home for over ten years, and until recently, have never filed a claim against our insurance company. Recently, however, we had a serious sewer backup which has caused thousands of dollars of damage to our house. We reported the incident to our insurance carrier, and have reached an amicable reimbursement arrangement with the company. However, we have just received a letter advising us that our policy will not be renewed at the end of this year.

Why is this happening, and what can we do?

A: It will not be a consolation to you, but this has become a nationwide problem. Insurance premiums – especially home and automobile coverage – are like roller coasters. For some years, the premiums go down (or at least stay steady) and then they spike upwards. Even before the tragedies of September 11 – where the insurance industry suffered tremendous financial losses – insurance premiums have been on the rise. And September 11th was the “icing on the cake', when it came to insurance premiums.

What is homeowner’s insurance? According to the Insurance Information Institute (III), “homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets.' III further points out that:

Damage caused by most disasters is covered but there are exceptions. The most significant are damage caused by floods, earthquake and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowner’s responsibility.

In recent years, the insurance industry has been losing money. Bad weather, such as hurricanes, and lawsuits involving mold have been expensive for all insurance companies. It has been predicted that based only on the damage caused on September 11th, over 100 insurers around the globe are expected to pay an estimated $40 billion or more dollars in the course of settling tens of thousands of claims.

Thus, the insurance industry – like many other American companies – are regrouping, downsizing and minimizing (or eliminating) their losses. One common thread is that insurance companies are refusing to renew policies where the homeowner has made even one claim in a year.

It should be noted that there is a major distinction between “cancellation' and “non- renewal'. According to III, Insurance companies “cannot cancel a policy that has been in force for more than 60 days except:

if you fail to pay the premium,
if you have committed fraud or made serious misrepresentations on your application.

On the other hand, non-renewal is an option available to both the insurance carrier and the homeowner. In many states, the carrier – which has the absolute right not to renew your policy – must give you advance written notice (usually 30 days) that your policy will not be renewed, and give you the reason for that renewal. If you believe the carrier is in error, you can file a complaint with your local State (or D.C) insurance commission.

There are, however, many steps which you can and should take, and here are some suggestions:

Comparison shop: when you buy a house, do not blindly accept the insurance company recommended by the real estate agent or the mortgage broker. Often, these individuals or companies get referral fees if you use those recommended services. (Note: if the broker discloses to you that there is a business relationship between the broker and the insurance carrier, this fee is legal; otherwise, it is an illegal kickback.)

Contact three or four companies and get premium quotes. If you have access to the internet, there is a wealth of consumer information – and prices –to guide you. Your local library most likely has internet access if you do not have a computer.

Keep in mind that the cost of the annual premium is not the only thing you should be comparing. How responsive is the insurance company to consumer complaints? Does the Better Business Bureau or your State Insurance Commissioner have records and reports on that company? Is the company financially sound?

Increase your deductible: in every insurance policy, the insured is offered the opportunity to have a deductible. This is the amount of the loss which is paid by the insured -- the policyholder. The larger the deductible, the lower the annual premium will be. It is estimated that if, for example, you raise the amount from $500 to $1,000, you can save as much as 25 percent on your annual premium.

Talk with your insurance agent. Get specific quotes as to each level of deductible, and then make sure that you are comfortable with the amount that you will have to pay – out of your own pocket – should disaster strike.

Inquire about discounts: most insurance companies will offer you discounts on your annual premium if you have taken certain steps to protect your house. For example, you can get up to 5 percent discount for a smoke detector, dead-bolt locks or a burglar alarm. Some insurance carriers will offer you a greater discount if you have a sprinkler system. It pays to ask while you are comparison shopping.

Consolidate your insurance: to the extent possible, have all of your insurance (automobile, home, and perhaps even life) with the same company. Most carriers will provide discounts under these circumstances.

Thus, you are not alone. This is a nationwide problem, and it does not appear that the end is yet in sight. We are still on the long upward incline on the roller-coaster.

Published: September 2, 2002

Use of this article without permission is a violation of federal copyright laws.

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Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of Kass, Mitek & Kass, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

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