Best Says Mold Will Drop Ratings In Texas
NU Online News Service, Jan. 15, 3:29 p.m. EST?High mold-damage claims will push down the financial-strength ratings of some Texas insurers as their financial performance and capital positions continue to deteriorate, A.M. Best, the Oldwick, N.J.-based rating company, warned yesterday.
Best said that unexpectedly large mold-related claims have disrupted the entire Texas homeowners market.
In a five-page report, Best noted that as a result of mold-damage claims, several carriers have stopped writing new business entirely in the state, while others have scaled back. Best said a large percentage of the market continues to record poor financial performance, with several carriers posting triple-digit loss ratios as of Sept. 30, 2001.
The Texas Department of Insurance recently issued new guidelines for mold damage coverage in response to this economic and capacity crisis. Best said that while these guidelines could potentially bring stability to the market, in the near term a number of Texas writers will continue to face significant financial pressure.
Continued debate over coverage issues, as well as the potential for litigation will impact the insurers, Best said.
Not only has frequency of mold claims increased exponentially across the state, but the severity has also trended upward over the past 18 months. The number of claims with incurred loss and allocated loss-adjustment expenses in excess of $5,000 has nearly doubled, Best reported.
In March 2000, more than 75 percent of claims were for less than $5,000, but by June 2001 that number was down to just over half. This trend can be at least partially attributed to the complexity and lack of standards with regard to the settlement of mold-related claims, Best found.
Best also noted increased involvement of public adjusters and plaintiff attorneys. While many reputable firms are involved in the remediation of mold exposures, the Texas Department of Insurance recently asked the state's attorney general to investigate mold-remediation practices, indicating that there might be excessive costs involved in some cases.
Overall loss ratios for the Texas homeowners line, Best said, have deteriorated significantly because of ongoing weather events and, more importantly, the escalating frequency and severity of mold claims. Such claims began escalating last year after a Texas jury returned a $32 million verdict in a mold damage case.
For the four years before 2000, loss ratios averaged just below 60 percent. At the end of 2000, however, the overall loss ratio increased to 86 percent, with this trend continuing into 2001, Best noted.
Quarterly statutory filings of a smaller sample of companies indicate that direct loss ratios for writers that operate predominantly in Texas–representing 66 percent of the market–were well into the triple digits through the first nine months of 2001, Best said.
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