Property and casualty insurance has become a barrier to homeownership and increasingly more expensive for residential as well as commercial properties. It’s an issue that has garnered the interest of real estate professionals here in Ohio and throughout the nation.

As you know, insurance is necessary to secure a mortgage, and lenders require ongoing coverage. Without insurance, lenders will not lend; without mortgages, the great majority of sales transactions cannot be completed. Without continuing insurance coverage, existing property owners cannot remain current on their mortgage obligations and may find themselves subject to expensive lender forced-place coverage or possibly foreclosure.

Availability and affordability of insurance are critical to the continued growth of homeownership and the real estate industry, which has been the pillar of the economy. Home sales in Ohio and nationally have reached record levels—with homeownership rates shattering all-time highs.

Increases in insurance premiums are preventing some potential homebuyers from qualifying for a mortgage and buying a home or requiring them to pay higher premiums than expected, in the event the cost would not prohibit them from obtaining the mortgage.  Current homeowners are also put in jeopardy by the increased cost of insurance. The average cost of homeowners insurance rose by about 8 percent in 2002 and jumped another 9 percent in 2003, and even higher in some states, according to the Insurance Information Institute.

How prevalent is the insurance crisis? Consider:

Some buyers are getting coverage from alternative carriers not regulated by insurance commissioners; such coverage is obtainable only at very high rates.

Owners of apartment buildings are facing lender demands for additional insurance coverage, such as additional liability insurance beyond what has been traditionally required.

Some insurers are using new underwriting tools to limit risk; and these new tools, such as credit-scoring and claims databases, are being used to deny insurance to consumers.

Despite the insurance industry claim that there is a statistical correlation between credit and insurability, there is no statistical research that proves a causal relationship between scores and insurance claims.

Some insurers are using claims databases to deny coverage to individuals and on properties for as few as one claim, regardless of whether there was damage to a property or whether the damage was caused by the insured. Most insurers will not write coverage for a property with even one water damage claim. Such actions have the potential to create a class of stigmatized properties.

The regulation of insurance is exclusively state law. However, the National Association of Realtors has taken proactive steps to address areas that are federally regulated and is working with state and local Realtor associations and outside experts to define appropriate responses at all levels.

The nationwide Realtor organization created an Insurance Task Force that made recommendations covering the following areas: expanding the variety of insurance products; providing extensive technical assistance to Realtors; educating members and consumers about the best practices to deal successfully with the insurance problem; and pursuing activities at the federal level to bring about increased transparency to the underwriting process.

Additionally, the Ohio Association of Realtors has convened a group to study the issue of insurance coverage/availability in the state and will work at finding solutions to insurance problems.

The following tips are offered to help consumers save money and offset higher premiums:

• Raise your deductible. Covering smaller losses could mean a substantial saving on a homeowners insurance premium. Hiking your deductible from the standard $250 to $500 could save you 12 percent, according to Insure.com, a consumer insurance website. A $1,000 deductible can save you up to 24 percent, $2,500 can mean a saving of up to 30 percent and a $5,000 deductible can result in a savings of up to 37 percent. If you raise you deductible, bank some of the premium savings so that you'll have the money for minor home repairs.

• Buy all insurance policies from the same company in order to receive a multiple policy discount.

• Avoid frivolous claims. Submitting a legitimate claim after years of paying premiums is justifiable, but frequent claims may mark you as a high risk. Consider paying for smaller losses to avoid related premium surcharges or even the chance of non-renewal.

• Review your policy annually. Correct and/or update the information. Double-check the information regarding how far your home is from a water source such as fire hydrant, as well as the location of the nearest fire station. If you carry an insurance endorsement on an item that's depreciated, reduce or eliminate the endorsement that covers it.

• Although there are more cases of under-insuring rather than over-insuring, make sure you land is not included in the amount of insurance coverage you buy. Land is part of your home's market value but does not need to be insured.

• Stay with your insurer. Some insurers reduce premiums by 5 percent after three to five years, and up to 10 percent if you remain a policyholder longer.

• Keep tabs of your credit. An Insurance Bureau Score (IBS) is a snapshot of your insurance risk picture based on information in your credit report. Some companies take insurance scores into account when assessing a potential homeowners insurance risk. IBS reflects your credit payment patterns over time, with more emphasis on recent information.

• Ask about available discounts. Some companies provide discounts typically in the 8 to 15 percent range for new construction, since newer homes are built to updated building codes and standards. Some insurers offer discounts for monitored home security systems. As noted earlier, if you've had your home insured with the same company or agency for several years, you may also be eligible for an additional premium discount.

To prevent losing coverage:

• Protect your home against typical perils. By preventing losses and claims, you can also help to keep the cost of insurance down. These include: Keep fire extinguishers in fire-prone areas such as the kitchen and laundry; Replace old, faulty wiring and make sure to tell your insurer; Regularly check your roof, down spouts and pipes for clogs or leaks; Discourage crime by using exterior lights at night and deadbolt locks; Repair loose railings, steps or walks.

• Avoid filing claims for small loses, such as those just above your deductible.

• As previously noted, on average a home owner files a claim once every eight to 10 years. If you happen to file multiple claims within a few years, you may be susceptible to being non-renewed.

• Educate yourself. Find out what Ohio's law is regarding home insurance renewals. Contact the Ohio Department of Insurance at (800) 86-1526 or on the Web at www.ohioinsurance.gov.

• If you receive a non-renewal or cancellation notice, take immediate steps before the policy lapses. It's easier to find another carrier while you're still insured in the voluntary market. Obtain quotes from at least three insurers so you can compare premiums and coverage options. If you are having trouble finding coverage, contact the Ohio FAIR (Fair Access to Insurance Requirements) Plan. The Ohio FAIR Plan provides a variety of coverages, but at higher premiums. Many FAIR policyholders obtain coverage on a temporary basis in order to clear past claims histories or to buy time in locating a private insurer. For more information on the Ohio FAIR Plan, call (800) 282-1772.

If you have any concerns about insurance issues, ask a Realtor member of the Cincinnati Area Board of Realtors for guidance. Realtors are working hard to make your dreams of homeownership a reality.

01/06/04