Hazard Insurance Costs Could Spike 30% to 40%

It's no surprise that mold, wind and terrorism top the carriers' exclusions roster. In 2001, catastrophic claims totaled $115 billion, up significantly from prior years. The projected bill for 9/11, said Greg Nelson, senior vice president of Safeco Select, is $30 billion to $58 billion. That's three times the financial impact of Hurricane Andrew, the largest insurance event ever to occur, he said, forewarning another 9/11 could threaten the solvency of the US insurance industry.

Of particular concern is the fallout of the reinsurance industry and the sure-to-come increases from a dwindling number in the business. A major Japanese reinsurance company already has declared insolvency, blaming the 9/11 airplane losses. Some 60% to 80% of actual losses are shouldered by an industry operating with a $125-billion capacity, said Nelson.

The dichotomy is that the mortgage industry wants more coverage and insurers are offering less and imposing lower limits and fewer choices, said the panel. Some states are stepping in as is the federal government to pick up the slack from exclusions, but the help often results in convoluted legislation dishing up its share of headaches for claimants. A case in point is the Texas Collateral Protection Act, which is to be reworked in 2003 to eliminate some flaws.

Weighing heavily on mortgagers and insurers is the predicted rise in catastrophic incidents. The esteemed Dr. William Gray of the University of Colorado is calling for 13 major storms this year and four major hurricanes. Texas, said Terry Mobly, vice president of Colonial Savings, is on the radar screen with the chance of another hard hit from a storm 30% to 40% greater this year.

There are no quick fixes, just sound advice since guaranteed replacement value coverage is non-existent in today's market. Building owners should have replacement value coverage; extended coverage limits would be particularly sweet. The tact can't be forced, but can be encouraged, said Wade Hardcastle, vice president of ZC Sterling Corp.

Mobly said foremost is keeping property insured since there are no more grace periods. Mortgage banking servicing agents were cautioned to make sure premiums are paid in full out of escrow accounts by the policy's expiration date. "If premiums are not paid in full, there's no coverage," she stressed.