Montemayor Okays ISO Homeowners Forms

In his continuing quest to find solutions keep the Texas homeowners market from completely falling apart, Insurance Commissioner Jose Montemayor approved residential property policy forms developed by the Insurance Services Office (ISO) that are used nationwide. According to the Independent Insurance Agents of Texas (IIAT) the form was originally filed in 1997 and re-filed last March.

The Alliance of American Insurers (Alliance) was quick to praise the commissioner’s action. “The Alliance welcomes Commissioner Montemayor’s decision to provide insurers with more flexibility in the products that they offer Texas homeowners,” stated Rita Nowak, assistant vice president of property/casualty for the Alliance. “His approval of ISO policy forms is just the latest action he has taken to show his dedication to providing affordable insurance coverage for Texans, while at the same time enabling insurers to protect themselves, their existing policyholders and shareholders from open-ended losses.”

Nowak expressed her belief that a “primary contributing factor” to the mold problem in Texas “has been the unique nature of the mandated Texas homeowners insurance policy, which requires much more generous coverage than those used in almost every other state.” She added that increased flexibility in coverage options in the state should “help the market sort out its recent dislocation.”

She also expressed the opinion that “similar market-based solutions should be considered before any drastic steps to over-regulate the insurance industry are contemplated” by the Texas Legislature.

According to a Texas Department of Insurance (TDI) announcement, an insurer wanting to use the ISO form in Texas must file for approval and show that it is reducing rates to reflect coverage differences between the new forms and the Texas standard policies it sold in the past. This is the same requirement that Montemayor applied to the national policies of State Farm and USAA, both of which were approved last spring.

“We at the Texas Department of Insurance are determined to reduce residential property rates, expand consumer choices and increase homeowners insurance availability for Texans,” Montemayor stated. “Today’s action on the ISO forms and the earlier approval of the State Farm and USAA national policies are important steps in reaching this goal. Texas consumers will have more choices in coverage and rates than at any time in the past.”

ISO’s application for six residential property policy forms, plus 93 endorsements, were approved for use in Texas. Insurers that do not have their own national forms commonly use ISO policies in other states. According to TDI approval is predicated on information and representations provided by ISO that policyholders purchasing the new basic policy forms and endorsements can reduce their homeowners premiums from about 8 to 39 percent of the amount they otherwise would have paid for the basic HO-B. The amount of savings depends upon geographic location of the home and coverage selection.

ISO’s Homeowners 3-Special Form is similar to the Texas Standard HO-B policy form, but it doesn’t cover losses caused by constant or repeated seepage or leakage of water from plumbing or appliances or by a sewer or drain back up.

The approved ISO policies provide limited mold coverage similar to that adopted by Montemayor in November 2001 for Texas Standard Policies. Among ISO’s approved endorsements is one that will give consumers the option of buying full mold remediation coverage up to policy limits.

As with the State Farm and USAA policies, the primary differences between the ISO policy forms and the Texas standard forms are in coverage of water-related damage. The basic ISO policy would cover damage from sudden and accidental water discharge. Unlike the HO-B, the basic ISO policy would not cover losses, including slab foundation damage, caused by constant or repeated seepage or leakage of water or by sewer backup.

“Buy-back” endorsements in the ISO package would enable policyholders to add:

Coverage in an amount equal to 15 percent of the dwelling limits of liability in coverage for slab or foundation damage resulting from accidental water discharges, including constant and repeated seepage. The 15 percent limit of liability would include tear-out costs.

Coverage for direct physical loss caused by constant or repeated seepage or leakage of water, including the cost of tearing out and replacing any part of the building necessary to access the system or appliance from which the seepage or leakage occurred.

Coverage to remediate mold resulting from a covered water loss, with limits of 25 percent, 50 percent or 100 percent of the Coverage A-Dwelling limit of liability. The purchase limits would include additional living expenses.
The slab or foundation coverage, water damage coverage and mold coverage endorsements would be offered to all applicants for new policies and to current policyholders when their HO-B policies are converted to the new forms.

Topics Texas Homeowners