The Washington Times

When Nancy Gaynor retired, she gave up a West Virginia farm for a four-bedroom home in Bethesda. However, with days to go before settlement, insurance problems almost prevented her retirement from happening. No one would write new policies during Hurricane Isabel. When she finally was approved, the new policy was canceled within days because the inspector found there was no railing leading from the back stairwell.

“It was just a hassle,” Mrs. Gaynor says. “The house has been here 50 years. It never had a railing. Ninety-five percent of the homes here don’t have railings.”

Eventually, the repair was made and the policy restored, but the complications represent the type of insurance hurdles today’s buyers can face.

Finding an insurance company used to be a routine step in the home-buying process. Increasingly, though, the insurance industry – which is hitting consumers with higher premiums – is making the process costlier and more complicated.

Homeowners are facing scrutiny like never before, and insurance companies are tightening underwriting guidelines, rejecting new policies and canceling old ones unless homes meet upgraded standards.

“This has been the top consumer complaint we’ve been seeing,” says Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights, an advocacy group pushing for tougher restrictions on the industry. “The regulators are not responding properly.”

Insurers argue that they’ve been hit harder by claims and that many homeowners are misusing their insurance to cover routine maintenance that should be an out-of-pocket expense.

“People need to understand insurance is for big disasters; it should be used for things that people can’t pay for out of their own pocket,” says Jeanne Salvatore, vice president for consumer affairs for the Insurance Information Institute [III]. “If you can afford to increase your deductible, you should.”

“The average homeowner’s policy is still only $615 a year, which is relatively cheap considering the cost of a new home,” Ms. Salvatore says. “If you think about what you are getting for the money, it’s a good value.”

Homeowners who have filed one or more claims during the past five years will face the toughest hurdles when applying for insurance, and a buyer interested in a house that has a history of problems, such as basement flooding or a fire, might not find a company willing to cover the home, Realtors warn.

“It can be a big shock when you buy a house and find out you can’t get insurance,” says Tom Whiteman, a Realtor with Long & Foster in Bethesda.

The National Association of Realtors [NAR] has formed a task force to examine the issue and push for policy changes to reform the industry.

Among other recommendations, the NAR wants to scrap controversial data – including credit scores – when setting premiums so homeowners with poor credit or no credit history are not penalized.

“It’s a hurdle,” says Nick D’Ambrosia, a task-force member and vice president of Coldwell Banker Residential Brokerage for the mid-Atlantic region. “The hardest hit would be the people with lower incomes and young families because they will have to budget more.”

The insurance industry has been reeling over the past decade with scores of multibillion-dollar claims after the September 11 attacks and a host of natural disasters. Spiraling construction costs, aging housing stock and a jump in mold claims also are contributing to a jump in losses for the industry.

Critics and watchdog groups, including the Foundation for Taxpayer and Consumer Rights, claim that the losses are compounded by financial missteps by the industry, which invested heavily in stock losers such as Enron and WorldCom.

The industry faced $1.17 in losses and expenses for every $1 earned in premiums between 1990 and 2002, according to the III, a trade association representing the property and casualty insurance industry. Companies doled out a combined $700 million a month since 1990, according to an III study.

Insurance companies are forecasting increases of 8 percent in premiums this year, on top of the 7 percent increase charged in 2003.

“Insurance years ago was supposed to cover things like fire and theft,” Mr. D’Ambrosia says. “Unfortunately, a lot of homeowners over the years are using their homeowners policy [for maintenance]. When the gutter is falling off, that’s when they call their insurance company.”

For some families, the spiraling costs can put homeownership out of reach, but preparation and thorough research can help consumers cut costs.

The III issued a series of guidelines for homeowners to follow that will help keep premiums low and streamline the home-buying process.

While house-hunting, home buyers need to look carefully at the same criteria insurers will require. An older home’s plaster walls and special features, such as ceiling moldings and wooden floors, cost more to replace and might increase premiums.

Also, look closely at the condition of the roof and plumbing, heating and electrical systems. Old systems in need of upgrades will cost more, while discounts are offered for upgraded heating, air and plumbing work.

Even before you decide on a home, contact several insurance companies and get an estimate for the type of house you expect to buy. Get started early, and provide detailed information on the number of bedrooms and baths and the ages of the homes you are looking at buying.

Get several quotes from insurance companies, and request information on their financial rating. Companies with a higher financial rating will be better able to respond in a real disaster.

Check a house’s loss history. The industry compiles a database known as Comprehensive Loss Underwriting Exchange [CLUE], which lists all claims filed on an individual property within the past five years. It is used to help determine your premium. If there was fire damage or flood damage, the home may be difficult to insure or could bump the property into a high-risk category, costing the homeowner more.

“If you went to a house and you found out there was a fire, you want to know the source of the fire and find out if it was repaired properly,” says Ms. Salvatore of the Insurance Information Institute.

To order a CLUE report, contact your insurance agent – or you can buy your own directly for $9 from http://www.choicetrust.com. If you are selling your home, order a report and include it in your brochure packet so you can assure buyers that the property has a clean insurance history.

Complete a home inspection. The inspector will look for problems that could affect your coverage and ask for a receipt noting repairs made if there were past problems. An inadequate repair could force the buyer to make improvements before a new policy is issued.

Check your home-insurance-claims history or your insurance score. The CLUE database also includes information on individual claims filed within the past five years. New underwriting guidelines will likely make it difficult to obtain insurance if you have filed more than one claim. Realtors say that even a phone call inquiring about water damages can be logged into the CLUE database.

Your insurance score is a combination of your credit history and risk level. The score is similar to a credit history and is used by insurance companies to determine your insurance rate. Getting a copy lets you amend mistakes so they don’t count against you long before you put an offer on a house.

Once you’ve decided on a home, talk at length with your insurance agent about ways to lower costs. Adding an upgraded security system can cut premiums as much as 15 percent. Bundling your policies with one firm – auto, marine and home – also helps cut costs.

Insurers also advise homeowners to raise their deductibles. By raising the deductible to $1,000, homeowners can save up to 20 percent on premiums.