Texas Insurers Estimate 60 Percent Increase in Water and Mold Claims

New estimates from the insurance industry predict insurer losses from water and mold damage claims will reach $780 million in Texas this year. The figure represents a 60 percent increase over claims from a year ago.

According to the Dallas Morning News, State Farm Insurance told the Texas Department of Insurance (TDI) that in the first six months of 2001, the company has seen a five-fold increase in mold related claims. State Farm, the largest property insurer in the state, covers about one-third
of the Texas homeowners insurancemarket. It reported around 1,200 claims, which averaged $50,000 each for the first half of the year.

Farmers Insurance indicated it has seen nearly 1,000 mold and water-related claims in the first half of 2001. Allstate Insurance reported to TDI that it has had increased losses this year as well.

Earlier, TDI Commissioner José Montemayor sent a letter to the state’s top 20 home insurers, stating that he expects his staff to make policy recommendations on mold and water damage issues by Oct. 1. Until then, Montemayor urged, Texas insurers should lift restrictions imposed by some in response to a surge in mold and water damage claims in the state over the past year.

He asked the companies, who write about 95 percent of the Texas homeowners insurance market, to give the department the opportunity to develop solutions to the mold problem before the insurers take drastic actions that could negatively affect the Texas homeowners market. Montemayor promised he would move “expeditiously” on the matter once he receives staff recommendations, and implored companies to prevent the necessity of TDI intervention by voluntarily allowing full access to the market.

Several companies, including Farmers, Progressive and Allstate, have scaled back or suspended new HO-B homeowners offerings in response to rising claims. At least one company is refusing new homeowners policies on houses that have had water damage claims in the past three years. Montemayor expressed concern that the insurers’ actions would have a detrimental affect on the Texas residential realestate market.

He assured companies that he appreciates their concerns about the increasing frequency and severity of mold claims, but challenged them to provide the agency with hard evidence that shows homes with prior water damage are more likely to experience that type of claim again.

Officials from the Texas Association of Realtors met with Montemayor and expressed support for his actions on behalf of Texas homeowners. “Commissioner Montemayor holds the same view that we do,” said Benny McMahan, CEO of Texas Association of Realtors. “Texans need the peace of mind that their homes and families will be protected. No action is just not an option when it comes to resolving this issue. We applaud the commissioner’s efforts to reach a solution that will not harm consumers and that will provide for a stabilized insurance market.”

Meanwhile, Texas insurers have indicated they are doing all they can to continue serving Texas homeowners despite financially alarming loss data. Sandra Ray, public affairs director of Southwestern Insurance Information Service (SIIS), predicted that if companies are forced to continue covering mold-related losses, “homeowners insurance rates will increase 40 to 60 percent in Texas.”

In a statement, Ray said that the insurance industry understands “the commissioner’s concerns and we understand the difficult position he is in and his needs to balance economic and regulatory demands.” She added the industry has been active in providing Montemayor with information regarding the rapid increase in water damage and mold claims. Insurers, said Ray, are also trying to get the message out to consumers on the importance of quickly cleaning up a sudden water leak and contacting the insurance agent in order to lessen damage and possibly prevent mold growth.

Ray asserted that the Texas homeowners policy contains “some of the most generous coverages in the country for water leakage and resulting mold damage.”