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Soaring homeowner insurance premiums and the lack of availability of insurance coverage have become significant new barriers to homeownership. In remarks at the National Press Club, Cathy Whatley, president of the National Association of Realtors, said new homebuyers who may have no credit history and existing homeowners who may have filed as few as one or two legitimate water-related claims are likely to be affected.
Whatley questioned the use by insurers of credit scores and the CLUE (Comprehensive Loss Underwriting Exchange) database, which contains claim histories of both individuals and properties for a five-year period. Many borrowers who can qualify for mortgages are being turned down for homeowners insurance, and others are finding that phone calls to their insurance agent are recorded on their CLUE file and can jeopardize their coverage.
"The crisis in insurance is putting homeownership beyond the reach of many young families, minorities and other Americans who have yet to achieve the American dream," said Whatley.
Many factors are contributing to the crisis. The use of credit scores to deny coverage raises questions about fairness and equality, said Whatley, despite the insurance industry's acknowledgment that there has been no research proving a causal relationship between credit history and the likelihood that one will file an insurance claim.
Whatley also raised concerns about the overall impact of the premium price increases on the real estate industry. According to the Insurance Information Institute, the average cost of homeowners insurance increased 8 percent last year and is expected to rise an additional 9 percent in 2003. While the average increase may seem unremarkable, many homeowners have seen their premiums soar as much as 30 to 70 percent.
"This sudden run-up in insurance prices could place at risk the housing economy, which has been the single bright spot in the national economic picture," Whatley said.
Similar problems of insurance availability and affordability have also impacted the multifamily and commercial real estate sectors. "Increases in insurance premiums for rental housing have dramatically raised expenses for providers of affordable rental housing," Whatley noted. "These increases obviously impact the availability of affordable rental housing options."
The National Association of Realtors has been investigating the insurance crisis since last fall, and the association currently is considering ways to help alleviate the impact on consumers.
Whatley said consumers considering a real estate purchase should not wait until the last minute to apply for insurance. "In light of today's insurance crisis, homebuyers should not take their insurability for granted," Whatley said.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to jnewton@jnpr.com.
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