Associated Press State & Local Wire
SACRAMENTO: Alan Phillips’ insurance problems began when he asked his agent if his lost wedding ring was covered by his homeowners’ policy.
It wasn’t, and Phillips, a retired San Francisco police officer, thought that was the end of it. As far as he was concerned there was no claim, no cost to the insurance company and no impact on his ability to get coverage.
But the agent construed the call as a claim that went on Phillips’ record. When he tried to get a better deal on homeowners’ and auto insurance with another company his homeowners’ request was rejected.
He ended up getting a policy from a third company, paying almost twice the premiums with a higher deductible for less coverage.
“I feel like a minor leaguer playing in a major league game in which the rules change at a moment’s notice,” he said.
Phillips was one of the witnesses Wednesday as the Senate Insurance Committee spent five hours delving into California’s increasingly tight and expensive homeowners’ insurance market.
State officials said they are receiving an increasing number of complaints from consumers about the cost and the difficulty of finding and keeping homeowners’ coverage.
Doris Calandra, an attorney for the state, said she had to go to Lloyd’s of London for an affordable homeowners’ policy after her coverage was cut off because she filed several minor claims for water damage.
“Our house has the red cross of the black plague on it,” she said. “If we wanted to sell we could not.”
Richard Beedle, an insurance agent from Southern California, said the homeowners’ market is tightening up much the same way it did after the Northridge earthquake of 1994.
“What I am experiencing in today’s marketplace is sort of deja vu all over again,” he said. “I think we are on the edge of the cliff looking over. I don’t think we are there yet (at a crisis level) but we are close.”
State Farm General Insurance Co., California’s largest insurer, has stopped accepting new homeowners’ insurance customers, and Beedle said many other insurers have imposed more stringent homeowner underwriting criteria.
State Insurance Commissioner Harry Low said 73 companies are still writing new homeowners’ policies in California and another 62 are accepting policy renewals.
Insurers who can’t get coverage from those companies can get a basic plan from the so-called FAIR Plan, an industry-sponsored insurance pool, he said.
Sen. Ross Johnson, R-Irvine, noted the Insurance Department had received only about 8,000 complaints this year about homeowners’ insurance out of approximately 8 million policyholders.
“This may be a problem but it doesn’t seem like much of a crisis to me,” he said.
Homeowners’ rates jumped an average of 15 percent this year, but for some the cost of homeowners’ coverage has doubled or tripled, Low said.
Insurers say booming housing values, higher repair costs, skyrocketing water damage claims, growing litigation costs and more fraud are the main reasons for the higher insurance costs.
Bill Sirola, a spokesman for State Farm, said the company stopped writing new California homeowners’ policies in May because of “major underwriting losses. We were paying out more in claims than we had foreseen,” he said in an interview.
But Doug Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights, suggested the industry was responding to its losses in the stock market and was trying to tighten the homeowners’ insurance market to make rate increases more acceptable.
“You have something like the energy crisis of two years ago,” he said. “Insurance companies are failing to write policies, supplies are tightened and prices are going up.”
Insurance Committee chairwoman Jackie Speier, D-Daly City, said the state needs to prevent consumer inquiries about coverage from ending up on industry databases as claims filed.
It also needs to ensure that companies aren’t using consumer credit ratings in evaluating customers for homeowners’ coverage, she said.
One company, Allstate, said it uses the ratings, claiming they have a “a significant relationship to loss.” But the Insurance Department says that relationship hasn’t been shown and is taking steps to force Allstate to discontinue use of the ratings.
Speier said the state also needs to look into whether companies’ underwriting guidelines should be made public, but she said the “jury was still out” on whether the state needs a law requiring companies to offer homeowners’ policies.