AUSTIN (AP) – Mold. It’s creepy, ugly and scaring the heck out some people who find it in their homes.
And it’s proving downright unhealthy for the Texas property insurance market.
Despite a proposal by state regulators last week to limit mold damage coverage for homes, two of the state’s largest property insurance providers, Farmers Insurance Group and State Farm Insurance, say they won’t be writing any new policies in Texas. Together, they hold more than 50 percent of the homeowner’s insurance market in Texas.
Farmers already had stopped writing new policies. State Farm, claiming mounting financial losses because of mold and other claims, announced its decision the day state regulators released their plan aimed at both preventing big rate hikes and protecting insurers.
Texas Insurance Commissioner Jose Montemayor said he was “terribly disappointed” by State Farm’s decision.
“I had hoped for more restraint. There are other options available to them,” he said.
The companies don’t think so.
Insurers say they’re worried about their business as mold damage claims and lawsuits increase.
State Farm Senior Vice President Ron Dodd said the company has five times as many mold claims this year as it did in 2000.
Underwriting losses have hit $504 million this year and the company has incurred $1.77 in claims losses and expenses for every dollar collected in premiums, he said. Much of the loss is related to mold claims.
State Farm said it plans to raise rates for current policy Texas holders by an average of 14.5 percent. The moratorium on new policies announced last week does not affect current policyholders.
In June, a Travis County District Court jury awarded a Dripping Springs family $32 million after finding that a subsidiary of Farmers Insurance Group mishandled the family’s homeowner’s claim for black mold damage.
The jury said the insurer committed fraud and failed to adequately and swiftly cover repairs for a water leak, allowing the toxic mold stachybotrys to overrun the 22-room mansion and damage the family’s health.
Farmers has asked Montemayor to let the company drop mold coverage from homeowners policies in Texas.
“Our costs for mold-related claims are skyrocketing,” Dodd said. “To continue would jeopardize the financial condition” of the company, which has about 1.7 million policies, he said.
Still, regulators saw the latest moratorium as unnecessary.
“This is an obvious effort to pressure the commissioner,” said Public Insurance Counsel Rod Bordelon, the state consumer advocate for insurance.
Montemayor said he wants to protect the companies and homeowners. As the chief regulator for the industry in Texas, he has the authority to determine what type of coverage will be mandated under homeowners policies.
He has scheduled an Oct. 16 public hearing on the mold coverage proposal.
Currently, all expenses related to mold damage are covered in the standard policy as long as the mold results from a water leak.
Experts say nearly all mold problems in homes including toxic black mold are caused by water leaks, such as from a broken washing machine hose, a leaky dishwasher or a cracked water or sewer pipe.
The proposal announced last week would scale back coverage significantly.
Mold coverage would be capped at $5,000 in all policies while allowing homeowners to buy more protection at additional cost.
Montemayor said analysis of mold claims indicates the cap would cover more than half the mold-related claims. He is convinced that without some sort of compromise, the residential property insurance market faces a major crisis.
“I am determined not to let this happen,” he said.
Industry representatives insist Montemayor’s plan wouldn’t avert an insurance crisis.
“The real solution to this problem is to give customers an opportunity to decline mold coverage and allow those wishing the coverage to buy it at a properly determined price,” said Jerry Johns of the Southwestern Insurance Information Service, an industry trade group.
A continuous stream of $5,000 claim checks won’t satisfy customers or help the industry, he said.
Montemayor said consumers and companies alike can work together to avoid costly mold claims.
Homeowners should immediately stop leaks and dry out wet areas. Insurers should respond quickly to claims with good customer service, he said.
“Mold has become a tremendously emotional issue,” Montemayor said. “It’s important we deal with it calmly, responsibly and rationally.”
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On the Net:
Texas Department of Insurance: www.tdi.state.tx.us