Pueblo Business Journal (Pueblo, CO)

Homeowners are beginning to experience a rude awakening as they discover their insurance rates are skyrocketing or that coverage has been cancelled for apparently no reason.

Insurance companies are boosting their rates for many reasons, including increased payouts the companies must make on homeowners’ claims and the lackluster performance of the companies’ own financial investments, said Kirk Yeager, assistant commissioner of consumer affairs for the Colorado Division of Insurance. He said many consumers have called the agency to complain about premium increases.

Other insurance watch groups say that it’s part of a general tightening of policies by property and casualty insurers following a deluge of hailstorms, snowstorms and forest fires throughout the state – and huge losses in the financial markets, a prime income source for insurers.

The cost of homeowners insurance in Colorado averages about $560 per year but has not kept up with rising costs, according to Carole Walker, executive director of the Rocky Mountain Insurance Information Association.

“Most insurance companies have tightened their underwriting restrictions,” Walker said. “Most companies have gotten a lot more restrictive on what they’re willing to insure. Insurers are also looking for ways to minimize their risk, and those methods include limiting or excluding coverage for certain types of damage, such as mold.”

Another factor that can cause companies to reject insurance applicants or cancel coverage is an individual’s credit history.

“That’s very controversial,” said Yeager. “But there is a correlation between credit score and risk.  There’s an idea that people who are meticulous about paying their bills are meticulous about taking care of their homes,” he said.

Walker said credit scores are a predictor of future loss and serve as one factor that insurance companies consider when deciding on rates and coverage for particular customers.

“People who manage their credit will file fewer claims,” she said.

“We can’t really tell you why there’s a correlation, but there are reams of data out there that show a really strong correlation,” Yeager said, “Consumers hate this practice. They feel it’s an invasion of their privacy. The companies haven’t done particularly well at explaining the correlation factor or why they’re using it.”

Walker also said companies are looking for other ways to drop clients who are their biggest risks. A customer’s claim history can raise a red flag for an insurer if the customer has filed several small claims within only a few years and warns that filing minor claims has become a surefire way to raise your own insurance rates.

That type of record, Walker said, can indicate someone is using homeowners insurance to pay for problems that likely could have been prevented by routine maintenance.
Homes with a long history of water losses, location in a neighborhood that is regularly flooded, or even electrical wiring that hasn’t been replaced in decades are considered high risks. If certain types of claims are filed, such as for water damage in the home, the homeowner runs the risk of having the policy canceled.

Additionally, homebuyers who are trying to purchase what is deemed a problem home may not get coverage at all.

Insurance companies are raising rates and canceling policies in some cases because homeowners made simple phone inquiries about their coverage. The companies will record a loss event even if an “official” claim is never opened and an adjuster was never assigned.

“If homeowners call their insurance provider’s agent to discuss an actual loss, it is generally considered reporting a claim, even if the company does not end up making a claim payment,” states a response to “frequently asked questions” issued by the National Association of Independent Insurers regarding C.L.U.E. reports.

“For instance, a consumer may contact their agent to report an event such as a broken water pipe and to determine the extent of coverage in order to decide whether or not to go forward with the claims process with the company,” the response states. And even if it’s determined that the damage is less than the deductible, or that there’s no coverage – or if the policyholder simply decides to pay out of pocket – the information might be recorded by the insurance company and end up on the C.L.U.E. report.

“We’re seeing insurance costs escalating and a rapid increase in non-renewals. More troubling, there is a quiet threat from insurers to consumers, in which they basically say, ‘If you file a claim, you’ll likely see your rate increase,'” said Doug Heller, senior consumer advocate at the Foundation for Taxpayer and Consumer Rights in Washington, D.C.

The insurance industry, however, justifies its rate hikes on an increased number of catastrophes: the high cost of home repairs, the aging of the U.S. housing stock and the emergence of mold claims.

Walker said companies pay $1.18 in homeowners’ claims for every $1 in premiums they collect.

Rising homeowner’s insurance rates haven’t hampered home sales – yet. But it is a growing concern. When buying a home with a mortgage, lenders require enough insurance to cover the value of the home. If homeowner’s insurance rates rise exorbitantly – or even worse, if insurers simply deny coverage – the home-buying process will obviously take a huge hit.

According to insurance analysts, because of the increasing rise in both homes and construction costs in Colorado, residents may soon experience about a 20 percent increase in premiums – which is twice the national average.

One realtor joked that they used to worry about whether their clients could qualify for a mortgage. Now they worry about whether they qualify for insurance.

Suggestions to cut insurance payments include raising the deductible to $1,000 or more, a move that may save consumers as much as 20 percent on their insurance premiums, according to Carolyn Gorman, vice president of the Insurance Information Institute.

“Take care of small problems yourself & and insurance should be used in the event of a catastrophe, not for minor problems,” Gorman said.

“Waterproof your home by repairing leaks to roofs, upgrade plumbing and clean out roof gutters. Last year, mold claims cost the insurance industry more than $1 billion, so insurers are especially wary of homes with a history of any sort of water losses,” she added.

Another suggestion includes obtaining a copy of your insurance score to determine your individual risk level. Gorman said consumers don’t want to learn midway through the purchase of a home that they can’t find insurance after they already have signed a contract to buy a home.

Ask for discounts. Insurers offer a wide range of discounts for all sorts of things, but you have to take the initiative and ask. She also advises that consumers shop around by getting as many quotes as possible.

“When you see increases above 15 percent, there’s probably something outside of a general rate increase that’s affecting it,” Yeager said.

“Agents and companies should be able to help consumers understand how much of their rate increase is related to a general rate increase and how much is related to other factors.”

He added that people whose premiums increase significantly should contact their insurance agents for an explanation.