Talking Points: Homeowners Insurance/Property and Casualty
The National Association of REALTORS® is the leading advocate for homeownership and housing issues. NAR works on behalf of consumers for insurance that is available and affordable; this is critical to the continued growth of homeownership and the real estate industry, which has been a pillar of the economy.
Insurance is necessary to secure a mortgage, and lenders require ongoing coverage. Without insurance, lenders will not grant loans; without mortgages, most sales transactions cannot be completed. Without continuing insurance coverage, existing property owners cannot remain current on their mortgage obligations and may have to pay for expensive lender forced-place coverage or possibly face foreclosure.
Increases in insurance premiums have exacerbated long-standing problems with housing affordability in many parts of the country. Those increases have prevented some potential home buyers from qualifying for a mortgage and buying a home; current homeowners are also put in jeopardy by the increased costs of insurance.
Property and casualty insurance has become more expensive for both residential and commercial properties over the past several years.
The average cost of homeowners insurance in the United States rose by nearly 23 percent in the first part of this decade, but has risen as much as 49 percent in certain states, according to the National Association of Insurance Commissioners.
Some buyers have been forced to turn to state insurance pools for coverage; others are getting coverage from alternative carriers not regulated by insurance commissioners. In either case, such coverage is obtainable only at very high rates.
Owners of multifamily properties are facing lender demands for added insurance coverage, such as additional liability insurance beyond what has been traditionally required.
NAR advocates making the insurance underwriting process more transparent to help consumers understand the factors that affect their ability to obtain insurance coverage, correct errors in consumer reports that can increase costs, and make informed insurance decisions.
Some insurers are using new underwriting tools to limit risk; but these new tools, including credit-scoring and claims databases, can be used to deny insurance to consumers who would not have problems obtaining coverage in the past.
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.
Insurers have used 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.
Some insurers will not write coverage for a property with a history of water claims; in some cases, even one water damage claim has proven problematic. Such actions have the potential to create a class of stigmatized properties.
Insurance regulation is exclusively state law. However, NAR 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.
NAR opposes federal efforts to replace the current regulatory system for insurance with a system of mandatory, uniform national standards for personal and commercial property insurance because federal regulations would eliminate states’ abilities to regulate property insurance rates.
NAR supports expanding existing laws that currently limit businesses from obtaining property and casualty insurance through risk retention groups. A risk retention group allows organizations with similar insurance needs to pool their risks and form an insurance company that they own and operate under state-regulated guidelines. This would increase the variety of insurance products available to NAR members and their clients.
NAR has created a State Insurance Consulting Program to provide insurance experts as consultants to state associations. Access to these consultants will help state associations better address insurance-related legislation or regulations at the state level. To access the insurance consulting request form, visit www.REALTOR.org and search for “state insurance consulting.”
Updated May 9, 2008
