NAR Insurance Task Force Final Recommendations

Final Recommendations

In developing its recommendations, the Task Force was committed to a number of specific goals. These included: (1) development a set of recommendations that would allow the NAR to address both the short term and long-term needs of the membership for a source of available and affordable insurance coverage; (2) provide state associations with the information and resources to address insurance legislative and regulatory issues at the state level, (3) take any needed action at the federal level, and (4) educate the REALTOR® community about the new realities of the insurance market.

The final recommendations of the Task Force are organized into the following categories: (1) recommendations for state association consideration, (2) recommendations for NAR assistance for state Association legislative/regulatory insurance dealings, (3) federal policy recommendations, (4) alternative insurance product recommendations, and (5) REALTOR® education recommendations.


NAR Recommendations for State Association Consideration and Activity
NAR Assistance for State Association Legislative/Regulatory Insurance Dealings
Federal Legislative/Regulatory Options
Alternative Insurance Products Options
REALTOR® Education


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1. Recommendation: That state associations consider advocating the creation or expansion of state insurance FAIR plans to include basic homeowners and commercial property coverage so that a robust alternative insurance mechanism exists in all states.

Rationale: State FAIR insurance plans can provide homebuyers and existing homeowners with property insurance when no private insurer is willing to write coverage. FAIR plan coverages typically meet the basic insurance requirements for lenders and the secondary mortgage market entities. States can protect the functioning of their real estate markets in hard market conditions by creating FAIR plans and offering robust insurance coverages through those plans.


2. Recommendation: That state associations consider advocating for state legislation/regulation that would require insurance companies to file their credit-based insurance scoring methodology and formulas with the state department of insurance providing that such methodology and formulas are held confidential and treated as a trade secret under state law.

Rationale: Insurance firms have traditionally opposed the disclosure of underwriting criteria arguing that such types of information are proprietary trade practices/secrets. However, consumers should be assured that such practices are appropriate and not discriminatory. In order to allow for such assurances, state insurance regulators should be given access to firm underwriting criteria and risk methodology. In order to balance the interests of the insurers such disclosures may need to be held confidential and accorded the same treatment as more traditional trade secrets.


3. Recommendation: That state associations consider opposing the use of credit scoring as the primary criteria for the acceptance, denial, renewal or rating of a potential insured for insurance underwriting purposes.

Rationale: To date insurers have not provided proof of the causal relationship that they contend exists between an individual’s insurance score and the likelihood that an individual will file future insurance claims. Instead, insurers have relied on correlation studies to justify the use of insurance scores. Lacking any substantive, valid proof of the causal relationship between risk and insurance scores, REALTORS should oppose the use of credit scoring as the primary or sole determinant for insurance underwriting and rate-setting purposes.


4. Recommendation: That state associations consider supporting legislation/regulation that would limit the ability of insurance companies to refuse to provide insurance coverage after the issuance of an insurance binder and/or close of escrow.

Rationale: Current technology allows insurers and even their agents to access claims databases such as the Comprehensive Loss Underwriting Exchange (CLUE) via their desktops or fax in a matter of moments. Likewise, the current escrow timeframe allows adequate opportunity for insurers to complete whatever physical inspections they might require prior to close. There should be no rationale for why an insurer should have to cancel an offer of insurance once a binder of insurance has been issued.


5. Recommendation: That state associations consider supporting legislation/regulation that would allow consumers one free copy of their credit report, CLUE report, credit score and insurance score per year.

Rationale:Some states have recognized the importance of consumers having access to their credit reports on a regular basis. As such, these states have implemented legislation and regulations that require consumer report repositories to make a free credit report available on an annual basis. Given the increasing problem of identity theft and the importance of consumer reports and risk scores in determining a consumer’s ability to access any number of important products – mortgages, car loans, insurance, etc – consumer repositories should make a free copy of their credit report, CLUE report, insurance score and credit score available to consumers annually.


6. Recommendation: That state associations consider advocating the creation of a consumer ombudsman in state insurance commissioner offices.

Rationale: Patterned after consumer advocates for utility issues, an insurance ombudsman would be responsible for representing consumers' insurance interests with the state insurance regulatory agencies. The advocate would watch for trends in market practices and report on their consequences. If new consumer protections or educational campaigns are needed, the advocate could be a voice for those serving as an independent expert on the consumers’ side. Having an insurance-consumer advocate would correct an imbalance that's currently lacking in any discussions of policy and regulation.

7. Recommendation: That state associations consider:

• The creation of a state insurance task force to examine the use of credit reports, credit scores and CLUE databases in the insurance underwriting process,
• The need for an insurance contingency in any standard contract form, and
• The development of an ongoing relationship with state insurance commissioners as well as the insurance industry so as to promote future communication and cooperation.
  
  Rationale: The use of credit reports, credit scores and CLUE databases in the insurance underwriting process are rapidly changing the availability and affordability of property casualty insurance coverages. Since insurance is regulated at the state level, local REALTORS® have a responsibility to become educated about the process and represent the real estate industry and consumers.
  
  
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1. Recommendation: That NAR create a program to provide state associations with access to consultants with expertise in insurance necessary for them to effectively address legislation or regulation dealing with insurance issues at the state level. The proposed program would be modeled after the successful Land Use Initiative program.

Rationale: Insurance is regulated at the state level. As such, the state associations are and will continue to be the REALTOR® organizations dealing with efforts to change the practice of insurance. Given the specialized nature of the insurance business and the relative lack of familiarity that most state associations have with insurance regulation, many state associations may benefit from access to consultants with insurance expertise. A survey of state associations on the extent of the insurance crisis and state association and legislative activities to address the situation was conducted.


2. Recommendation: That NAR create/maintain a web-based resource center on insurance issues that would provide state and local associations with easy access to commonly needed insurance advocacy information.

Rationale: Information sharing can help promote the REALTOR® agenda at the state level. In order to allow associations to learn from one another and from the analytical resources developed by any national Insurance Initiative consulting program, the currently existing Insurance web resource pages would be maintained and expanded.


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Transparency and Accuracy of Credit/Insurance Scores and Claims Databases
Alternative Insurance Vehicle
Natural Disaster Risks
Tort and Class Action Reform

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1. Recommendation: That NAR support disclosure of insurance scores, the key factors influencing the insurance score, the date of the score, and sufficient explanation to facilitate understanding what impact the insurance score may have on the insurance underwriting decision in accordance, in accordance with existing policy on credit score disclosure.

Rationale: Insurance scores are increasingly being utilized to underwrite homeowners and property/casualty insurance policies. These scores often include a mix of credit report and claims report information. Disclosing these scores to the consumer, along with the factors influencing the score, will allow the consumer to better evaluate their ability to obtain insurance.


2. Recommendation: That NAR support amendment of the Fair Credit Reporting Act to shorten the time frame available for consumer reporting agencies to investigate and correct consumer reports.

Rationale: Currently, consumer-reporting agencies are granted 30 days to investigate alleged mistakes in consumer reports. Given the increased use of technology and consolidation of the credit reporting business, it should be possible to complete any investigation of inaccuracies in less than 30 days. A shorter time frame will force reporting agencies to complete their investigations in a timely manner and help prevent delays or cancellations of real estate closings.


3. Recommendation: That NAR support legislation to increase the penalties for entities that repeatedly report inaccurate information to consumer reporting agencies.

Rationale: Critics of the existing system argue that the current penalties are insufficient to discourage those firms that report information to the consumer reporting agencies from continuing to report inaccurate information to the reporting agencies, especially when that information has been resubmitted following a consumer inquiry.


4. Recommendation: That NAR support legislation that would regulate the manner in which multiple inquiries generated when consumers shop for mortgages or insurance over an extended time period are evaluated by lenders and insurers.

Rationale: Many consumers shop for major purchases like an automobile, mortgage or insurance over an extended period of time. Multiple “credit” inquiries can result from this shopping process and lower a consumer’s credit score. In order to more correctly reflect reality, credit reports and credit scoring models must recognize when a consumer is shopping for the best terms as opposed to seeking numerous loans/lines of credit/etc. Currently, credit-scoring model providers have voluntarily agree to aggregate inquiries occurring within a specified period of time (typically two weeks) for mortgages or auto loan into one inquiry. However, consumers seeking the best deal or facing a marketplace with few providers as is the case with today’s insurance market may choose or be forced to shop over a longer time period. Given the importance of credit scoring in underwriting, a more regulated approach to the treatment of multiple inquiries resulting from shopping must be developed.


5. Recommendation: That NAR support legislation/regulation that would allow consumers one free copy of their credit report, property claims report, credit score and insurance score per year.

Rationale:Some states have recognized the importance of consumers having access to their credit reports on a regular basis. These states have implemented legislation and regulations that require consumer report repositories to make a free credit report available on an annual basis. Given the increasing problem of identity theft and the importance of consumer reports and risk scores in determining a consumer’s ability to access any number of important products – mortgages, car loans, insurance, etc – consumer repositories should make a free copy of their credit report, CLUE report, insurance score and/or credit score available to consumers annually.

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Recommendation: That NAR support passage of an amendment to the federal Risk Retention Act (RRA) to expand its provisions to property and casualty insurance.

Rationale: The RRA currently allows entities to operate risk retention groups under streamlined rules that require licensure under the laws of a single state. It only applies to liability insurance presently. Expansion of RRA to include property and casualty coverage would provide opportunities for the real estate industry to provide insurance coverage for commercial property and casualty claims. These opportunities would serve as a pressure release during hard insurance markets to increase availability and affordability.

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Recommendation: That NAR aggressively pursue creation of a federal natural disaster insurance program.

Rationale: Currently, the losses due to natural disasters are uninsured risks. This liability not only impacts homeowners who may suffer losses during a natural disaster but also the federal taxpayer who is called upon to fund any disaster relief measures undertaken by the federal government following a major disaster. NAR has policy supporting the creation of a federal disaster program.

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Recommendation: That NAR more actively participate in federal tort reform and class action reform legislative debates.

Rationale. Large court awards are a major factor pushing up the cost of insurance premiums. Tort reform would limit the ability of the courts to impose excessive damage awards. With such limits in place, insurers would be better able to underwrite the risk inherent in property insurance purposes.

NAR has policy supporting tort reform. While no further actions would be necessary to implement this policy, the Business Issues Committee could consider further refinements to the existing policy to address questions raised by current legislative proposals.

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1. Recommendation: That NAR explore the creation of a preferred partner relationship with established insurance firms or brokerages to provide affordable homeowners insurance coverage to REALTOR clients.

Rationale:Using the leverage that an organization of 880,000 members can have, NAR may have the ability to negotiate preferred partner relationships with established insurers that could make affordable insurance coverage available to REALTOR clients.


2. Recommendation: That NAR explore the feasibility of NAR providing informational resources on the process of creating and administering a self-insurance, captive and reinsurance capacity for those NAR members and their clients interested in creating such a self-insurance program.

Rationale: Some firms may be in a position to benefit from participation in a self-insurance and/or captive insurance program. NAR currently provides information on a variety of topics that assist members with their business dealings. Information on alternative insurance mechanisms would be a useful addition to available educational materials.


3. Recommendation: That NAR undertake the initial research necessary to explore the feasibility of NAR creating and administering captive for the purpose of providing errors and omission insurance to NAR members.

Rationale: Errors and omission insurance has become increasingly difficult and expensive to obtain. The number of top rated insurance companies providing the coverage has declined precipitously in the past few years (2 companies versus 12 companies a decade ago). In order to assure NAR’s members access to affordable E&O coverage, the Task Force believes that it is appropriate for NAR to once again explore the feasibility of such an undertaking.

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1. Recommendation: That NAR develop informational resources for REALTORS® to use to educate consumers about how to deal with their property casualty insurance needs, including informational brochures that could be easily downloaded, reproduced and used by members to educate their clients and a consumer-oriented website on insurance topics.

Rationale: REALTOR® members serve as the transaction experts for their current and former clients. Any resources that NAR can make available to members advise clients will help the REALTOR provide correct and timely information, conduct their businesses in a professional manner and remain a primary source of expertise.


2. Recommendation: Than a workgroup of the Insurance Task Force and the Risk Management committee be created to develop a set of best practices for REALTORS that would guide the membership on how to advise their buyers and sellers on insurance issues.

Rationale:REALTORS® advise their clients on all parts of the homebuying process including obtaining insurance. In order to provide their buyers and sellers with advice that serves the clients best interests and addresses the professional’s need for a reasonable risk management, REALTORS can benefit from a set of ‘best practices’ that recognizes both sets of needs. The members of the Insurance Task Force and the Risk Reduction Committee are uniquely positioned to provide advice that serves both interests.

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