NAII Opposes Water Damage Claim Restrictions in Texas

A representative from the National Association of Independent Insurers (NAII) spoke in opposition to proposed regulation prohibiting the use of prior water damage claims in the underwriting or rating of residential property insurance in Texas. Donald Hanson, NAII southwestern regional manager, presented the association’s views at a hearing held by the Texas Department of Insurance to gather testimony about the proposed rule.

“At a time when Texas’ insurers are struggling under the weight of significant losses from water damage claims, the ability to reduce future water damage losses through the avoidance of adverse selection is critical to maintaining the delicate balance between availability and affordability in the current homeowners’ insurance marketplace,” Hanson said.

The proposed rule would prohibit an insurer from using water damage claim history as an underwriting guideline or to rate a new policy if an inspection has not been conducted by the insurer to determine the condition of the property. The department has stated that it believes the decision to increase the premium on a policy or decline to write a policy based on water damage claim history rather than ascertaining the condition of the property through an inspection is unfair and should be prohibited.

“As currently proposed, the regulation would add tremendous expenses to the cost of coverage and would likely result in even higher premiums adding to the availability and affordability problems currently being faced in the state,” Hanson said.

If the regulation proceeds, NAII recommends that the inspection requirement be eliminated and replaced with a prohibition from declining to write residential property insurance based solely upon a single prior water damage claim within the preceding 36 months either by the applicant or on the proposed covered property. In addition, the regulation should be modified to eliminate the prohibition on the use of underwriting and rating guidelines based on a previous water damage claim. In its place the regulation should be amended to prohibit the use of an underwriting guideline that is based solely upon a single prior water damage claim within the preceding 36 months either by the applicant or on the proposed covered property in making a decision to decline to issue a policy of residential property insurance.

Topics Texas Legislation Property