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Caught in a storm

Homeowners insurance costs are skyrocketing, and some longtime customers are not being renewed. Insurers blame higher losses, huge payouts in mold cases and the downturn of their equity investments.

November 24, 2002|Karen E. Klein | Special to The Times

In 20 years of homeownership, Barbara Bratcher had never filed a homeowners insurance claim. So when she returned from a two-week vacation last spring to find that a pipe under her kitchen sink had dripped and soaked the floor, warping her kitchen cabinets, she reported it to her State Farm agent.

"They came out and tore out the warped board, replaced a piece of wall behind my sink, dried up the puddle of water and sprayed for mold," Bratcher recalled. "I paid the $500 deductible, and the company paid out all of $400."

End of story?

Hardly. Bratcher, an emergency room nurse who owns a 1,400-square-foot, three-bedroom home in Modesto, had unknowingly put herself squarely in the center of an insurance crisis that the industry is calling "the perfect storm."

Unexpectedly high underwriting losses for non-catastrophic events, increased litigation over so-called toxic mold, investment losses tied to the stock market and more expensive construction materials and methods have led to a near-shutdown of the homeowners insurance market.

State Farm, the nation's largest personal insurer, is not writing any new homeowners policies in California or 17 other states. Allstate, which earlier this year was refusing to sell to new customers who had filed water damage claims, is now taking on new and renewal customers with one claim in the last three years, but only if they have good credit reports.

All of the major carriers have raised premiums this year, most by double digits and some by as much as 50% for certain customers, and they are all using much stricter standards for policy renewals.

The bottom line for consumers: higher premiums; tougher inspections, especially for older homes that do not have copper wiring, retrofitted plumbing and new roofs; increased scrutiny at renewal time, particularly for policyholders who have filed claims in the previous year; and difficulty securing new homeowners insurance.

The fat '90s, when overcapitalized insurance corporations were reaping high investment returns and competition kept rates artificially low, are long gone.

Experts say that consumers will simply have to get used to paying more for homeowners insurance and learn to be judicious about filing claims, treating homeowners insurance as they do automobile policies.

When Bratcher's homeowners policy came up for renewal in August, she received a bill that was double what she normally paid. When she placed a shocked call to her longtime agent, he apologetically told her that because she had filed a claim for water damage, her premiums would be increased from $543 to $1,000 annually for the next three years. She approached Allstate and Farmer's for comparison quotes, but they rejected her immediately when she told them she had filed a water-damage claim.

"It was outrageous. I hadn't made a claim in 20 years," Bratcher said. "Why do I even have insurance if I can't make a claim?"

She wound up finding a smaller insurance carrier at a more reasonable $663 annually, with a promise of a reduction after two years, but some Californians have not been as lucky. First-time homeowners, particularly, are finding that the once-effortless task of buying insurance has become a chore.

Natasha Dierwechter, 34, purchased her first home in the Altadena foothills in August. She called her Allstate broker, who carries her auto insurance, to get a policy for the 1,750-square-foot, three-bedroom house with a pool.

"First they told me I'd have to buy renter's insurance for the place I was living in with two housemates, cancel it and then they could convert it to a homeowners insurance policy," Dierwechter said.

She complied, but the nightmare was just beginning.

"Because there's a pool in the backyard, I had to certify that I do not have a child living in the house and will never take in a roommate with a child," she said. "Next, the inspector came over and saw a pit bull in my backyard. It's not my dog -- I don't even know how it got back there -- but that raised all kinds of questions, and they were going to suspend my policy. I had to prove that was not my dog before they would issue the policy."

Dierwechter began renovations recently and at one point had some concrete piled in the frontyard. Before she knew it, she received a warning that her policy would be canceled in 30 days if she didn't "clear the clutter."

"Now I have to take a photo of the house and e-mail it to them to prove that it's cleaned up," she said. "The whole thing has been a terrible hassle."

Insurance insiders blame the industry's clampdown in large part on attorneys who, they say, have taken advantage of public panic over mold-related health problems. They point to heavily publicized allegations that airborne illness has resulted from mold spores and to a large increase in mold claims in Texas, which cost the State Farm subsidiary there $625 million in capital reserves. State Farm recently received approval to put a cap of $5,000 on mold remediation damages nationwide.

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