Evolving HO Policies Prompt Montemayor to Issue Consumer Alert

Homeowners insurance policies in Texas are rapidly evolving. As a result, Texas Insurance Commissioner Jose Montemayor warned the state’s homeowners policyholders to carefully review their policy renewals to understand changes in coverage.

Turmoil has been building in the Texas homeowners market over the past two years due to the rapid rise in claims for water and mold damage. The situation was exacerbated by the $32 million judgment against a Farmers Insurance Group subsidiary in June 2001 that concerned a mold-contaminated house in Dripping Springs.

“We know that one major insurance company is no longer offering policyholders the comprehensive HO-B homeowners policy, but rather an HO-A policy,” Montemayor noted. “Unless endorsements are added, the HO-A policy excludes coverage for such losses as frozen pipes, water discharges and damage from falling tree limbs. The unendorsed HO-A also pays only actual cash value, not replacement cost, for damaged house-hold contents and damaged building components, such as roof coverings.”

Two of the states largest residential insurers, Allstate and Farmers, recently received Texas Department of Insurance (TDI) approval for endorsements to HO-A policies that provide limited coverage for water-related damages. Farmers decided late last year not to renew the comprehensive HO-B policy, whichoffers more extensive protection for water damage. Neither company plans to offer Montemayor’s recently revised HO-B policy. Other insurers exempt from rate regulation are raising premium rates.

Insurers were able to begin offering the revised HO-B policy on Jan. 1. The modified policy retained coverage for removal of mold related to certain water damage covered by residential property policies, including the most commonly purchased HO-B homeowners policy. However, it does not cover testing, treating, containing, or disposal of mold, and it requires insurers to offer homeowners the option of buying back mold remediation coverage in increments of 25, 50, and 100 percent of their policy limits.

Allstate goes for the HO-A Plus
Allstate will offer the approved endorsements to its new HO-A homeowners policy through the company’s Allstate Texas Lloyd’s subsidiary. The endorsements provide broader coverage to the HO-A policy and create a new product option, the Allstate HO-A-Plus. The new plan is meant to fill the coverage gap between the bare-bones Texas HO-A policy and the more comprehensive HO-B.

According to Allstate, the new HO-A-Plus policy will cost about 20 percent less than the current HO-B coverage. The new coverage will be marketed as Allstate’s primary homeowners product and will be offered to new Texas clients in late January and to current customers for renewal in March.

• Specific endorsements of the new policy include:
• Replacement cost coverage for both personal property and the dwelling, subject to limitation;
• Protection against perils such as sudden and accidental discharge, leakage, or overflow of water or steam from within plumbing, heating, air conditioning systems or household appliances;
• Protection against freezing of plumbing, heating, air conditioning systems or household appliances;
• Protection against building collapse, building glass breakage, and falling objects; Limits are specified for remediation of mold resulting from a covered water loss ($5,000); and
• Coverage for foundation tear out and replacement (five percent of the dwelling limits or $3,500, whichever is greater) resulting from sudden and accidental discharge or leakage of water from a plumbing drain system in or under the slab or the foundation of the dwelling.

Like other Texas carriers Allstate has raised rates for HO-B policies. The company cited rising construction and repair costs, as well as potential damage from weather-related catastrophes—in addition to water and mold claims—as reasons for the rate hikes.

While Allstate does not plan to offer the modified HO-B policy to Allstate policyholders in Texas, it has submitted for TDI review the homeowners contract Allstate uses in most other states. If approved, the Allstate proposal will provide consumers with another policy option.

Farmers’ TX040 adds water coverage
Farmers Insurance Group’s Homeowners Amendatory Endorsement (TX040) to the new HO-A homeowners policy also provides the option of additional coverage, including limited coverage for water damage that isn’t offered under the standard HO-A policy.

“The decisions to change our offerings were made as a result of the huge number of unexpected water and mold losses Farmers and the industry is experiencing in Texas,” said Farmers Texas executive officer John Hageman.

Farmers expects its 2001 water and mold losses to be over $300 million above the premiums it collected for these perils. The company stopped writing new HO-B policies in the state in August 2001, but Farmers said it will continue to offer HO-A homeowners policies and approved endorsements to both qualifying existing and new customers.

The new TX040 endorsement adds the following coverages to Farmers’ HO-A policy:

• Sudden and accidental discharge, leakage, overflow or release of water or steam (three coverage limits of liability are available in the amounts of $5,000, $10,000, or $25,000);
• Fall of trees or limbs, including felling, topping or trimming;
• Objects falling from the weight of ice, snow, or sleet;
• Collapse of building or any part of the building; and
• Breakage of glass which is part of the building, including glass in storm doors and storm windows.

On its own, the HO-A policy covers damage from fire and lightning, windstorms, hurricanes, hail, theft, smoke, aircraft and vehicles, vandalism, and riot and civil commotion.

For more information on homeowners policies and renewal changes, policyholders are advised to visit the TDI web site, www.tdi.state.tx.us.

Topics Texas Agribusiness Homeowners