Mold: Introduction for Insurance Agents

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Increasing frequency and severity of mold claims

Mold remediation

We all know that the number of mold claims have increased in recent years. With increased public awareness about the mold issue comes increased litigation. The high cost of remediation--not to mention the high cost of testing for mold--has given us something to worry about. Remember that mold is not just an "old building" problem; it appears just about everywhere. Did you know that newer construction is actually MORE conducive to toxic mold growth?

Nationwide, mold claims have risen from about $200 million in 2000 to $1 billion in 2001 to an estimated $2.5 billion in 2002, according to the Insurance Information Institute. The payouts are still only a fraction of homeowners' total claims. In 2001, for instance, insurers paid out nearly eight times as much on fire and lightning claims. On average, only 22% of homeowners' claims involve water damage, compared with 38% for lightning and fire. Industry analysts estimate that about half of water damage claims involve mold.

In the meantime, homeowners are paying higher insurance rates. Since 2000, the average homeowner's policy has risen nearly 20%, from $512 to $603 per year, according to the Insurance Information Institute. An increasing number of customers are being denied coverage, over fear that they might file a water-related claim.

Water claims are in the billions and counting
In a July 2003 article from the Insurance Information Network of California based on an industry survey, remediation and construction costs were largely faulted for the $66 million increase in water damage insurance losses from 2001 to 2002. By comparison, all other homeowners insurance losses accounted for two-thirds of homeowners' costs, but increased by $58 million last year, roughly $8 million less than increased water losses.

"The cost of water losses continued to grow unabated in 2002," said IINC Executive Director Candysse Miller. "Water is absorbing a larger and larger share of California homeowners insurance losses."

Insurers attributed the increased expenses largely to the price of repair and remediation, costs that have skyrocketed as insurers try to prevent small water claims from turning into large mold losses.

Though the number of water-related claims--or insurance losses for damage caused by burst hoses and pipes or leaks from washing machines, icemaker connections, lavatories and other household water fittings--has varied from year-to-year, the cost of water damage has climbed in each of the past five years.

Between 2000 and 2002, the annual cost of water claims climbed by more than $120 million. On average, individual water claims cost surveyed insurers $4,925 in 2002, nearly double the $2,537 average water claim at the beginning of the survey period.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.