The stories of hard-to-get insurance and exorbitant prices are all too familiar these days. One Realtor tells of a personal experience when she submitted a claim for her fence.

"My husband filed a claim last year when our fence blew down. After the deductibles, he ended up getting a whopping $32," said Therese Swan of Alain Pinel Realtors in Los Gatos. "This year, we purchased four different properties. On every one of them the process went like this: Our insurance agent gave us insurance, then a month later we'd receive a letter canceling our insurance because of the claim; then we had to contact the agent until he got it reinstated. What a pain for $32."

Most of the horror stories center around water damage claims, since the mold issue has the insurance industry in a tizzy. After a $32 million award for a toxic mold claim in Texas, there is fear of future lawsuits over mold. That fear has trickled down to impact buyers and sellers.

"I had a transaction in October where we had a holdup at the last minute because the seller had two water claims in the last three years and the buyer's current insurance company would not insure the property. My clients resolved it by shopping around and getting insurance at about 150 percent of what they were expecting, with the seller giving a credit for the difference in escrows," said Rebekah Owen of Benchmark Properties in Cupertino.

Realtor Deeann Mahoney of Alain Pinel Realtors in Los Gatos educates her clients ahead of time about how insurance companies are tightening up. She informs her clients that it may affect their ability to purchase a home.

"As a seller, they should contact their current insurance company to make sure their policy is transferable. As a buyer, they should immediately obtain a new policy before removing contingencies. I continue to let my current homeowner clients know that they should be careful when making a claim because it may affect their ability to sell or buy a home," said Mahoney.

According to Chris Grammar, vice president of Allied Insurance Brokers in Palo Alto, the homeowner property issue has been brewing for some time. He believes Sept. 11 brought it to a head and mold claims pushed the insurance industry over the edge.

"If a fence falls down, an insurance company may take one of those claims. But the real reason the insurance industry is losing money is due to big judgments against them on mold claims. There is uncertainty about the future as attorneys start to cash in. Then the Sept. 11 terrorism claims made the future even more uncertain," said Grammar.

The stock market situation didn't help out either. Poor investments have impacted the insurance industry and they are losing money, said Grammar, who explained that insurance companies have two ways of making money.

"The theory is that they will take in more premiums than they will have to pay out in claims. Most have a 102 percent loss ratio so they lose money but hope to make up the money through investments," said Grammar. "Well, when the investment business goes down the tubes, there's no protection for their high loss ratio. They can't cover it up."

Additionally, many companies were able to get rate increases pushed through so Grammar sees another year of problems before there will be any improvement. After a pretty grim year in 2002, he predicts that insurance companies will make changes, with layoffs as a possibility. As the end of the year approaches, Grammar believes the insurance planning process and reinsurance negations will tell us where the insurance industry is going for next year.

In the meantime, Grammar advises homeowners to plan ahead and avoid any surprises. Since water claims are going to be undesirable to almost any insurance company, he recommends calling an insurance agent and asking them to run a CLUE (Claims Loss Underwriting Exchange) report that shows how many and what kind of claims apply to the location.

In addition to understanding the history of claims, Grammar said, a good credit report is important, since many insurance companies won't insure anyone with a score lower than 700. Credit scores are determined by several variables. Insurance companies are looking in particular for the amount of activity, credit card debt, bankruptcies, late payments and any other signs that indicate someone is more likely to make a claim.

"Statistics show that people with credit problems are five times more likely to have a claim. That's called a moral hazard. So someone who is totally, financially clear is a better risk for insurance companies," Grammar said.

Finally, if a house has water damage, it's important to get it cleaned up, inspected and fixed. "Insurance companies are afraid of hidden problems that could result in future claims, because they are afraid of punitive damages. But you can get a clean bill of health for your house by calling in a mold specialist and fixing any water damage. You don't want to be sued over this in the future, so spend the money to fix it now," said Grammar.

For Realtor Joette Schenck of Alain Pinel Realtors in Los Gatos, an insurance agent is key. When a client is interested in a property, she calls her insurance agent to obtain preliminary feedback regarding the insurability of the property.

"I let my buyers know about the current insurance climate early in the shopping process," said Schenck. "I have them contact an insurance agent the very day their offers are accepted. Bottom line—be proactive."