National Realtors Group Raps Insurers' Practices

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By Steven Brostoff, Washington Editor

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NU Online News Service, Feb. 27, 9:59 a.m.EST?Soaring homeowners' insurance premiums andlack of access to insurance coverage are creating new barriers tohome ownership, the National Association of Realtors says.

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At a press briefing, the Washington-based association took aimat such industry practices as credit-scoring, data reporting andthe underwriting cycle, arguing that the industry may be puttingthe housing sector of the economy at risk.

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"Many factors are contributing to the crisis, but the use ofcredit scores to deny coverage raises questions about fairness andequality," said NAR President Cathy Whatley, a Jacksonville,Fla.-based real estate agent.

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The insurance industry continues to use credit scoring, shesaid, even though it acknowledges that there is no research provinga causal relationship between credit history and the likelihoodthat someone will file an insurance claim.

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Mike Schmelzer, a New York City-based realtor who heads NAR'sInsurance Task Force, added that it is difficult to understand thelogic behind the notion that someone who missed a credit cardpayment at age 22 is more likely to file a claim at age 32.

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He said he does not believe it is appropriate for insurancecompanies to use credit scoring as an underwriting tool.

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Mr. Schmelzer said that his task force has discussed the issuewith insurance companies and is now evaluating its options.

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He said he hopes the task force will have recommendations readyshortly.

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In addition to credit scoring, Mr. Schmelzer criticized thecyclical nature of the industry.

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He said that in his conversations with insurance industryrepresentatives, the industry justifies large rate increases byciting the insurance cycle.

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There was a soft market in the mid-1990s, Mr. Schmelzer quotedindustry representatives as saying, and now there is a hardmarket.

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The insurance representatives, he said, insist that theinsurance cycle is prevalent in the history of the industry.

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That may be so, Mr. Schmelzer said, but that doesn't work wellfor consumers, who cannot absorb the rate increases.

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The insurance industry, Mr. Schmelzer added, has legitimateissues, but it must work with the communities it serves.

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The industry must develop strategies that do not have such anegative impact.

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Ms. Whatley noted that homeowners' insurance rates increasedsome eight percent last year and are expected to increase aboutnine percent in 2003.

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She acknowledged that home values have also increased over thesame time period, although the degree of increase depends on thelocation.

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However, Ms. Whatley declined to link the increase in insurancepremiums to the increase in home values.

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This is not necessarily an "apples to apples" comparison, shesaid.

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NAR also questioned the Comprehensive Loss Underwriting Exchangedatabase that provides claims history information to insurancecompanies.

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Ms. Whatley said that the use of this database is creating afear among consumers of filing claims. The belief is that once thatconsumer files a claim, he or she might find it very difficult toget insurance in the future.

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Mr. Schmelzer added that the database stigmatizes some homes.Once a claim is filed on a property, he said, it may be difficultfor prospective purchasers of that property to acquireinsurance.

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Some insurance companies, Ms. Whatley said, are using theC.L.U.E. database to deny coverage on individuals and propertiesthat have even one claim.

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