The problems that serve to make the Texas marketplace precarious for insurers originated from unique, state-mandated policy forms that offer very broad coverage regarding water damage claims. In addition, the requirement that all homeowners insurers offer identical coverage meant that the entire marketplace became vulnerable in an instant.

Across the country, sensationalist media coverage has amplified consumer concern of the possible health dangers of mold. In addition to heightened public awareness, factors such as modern building materials, ambitious trial attorneys, and the emergence of so-called “mold remediation specialists” contribute to the increasing number of mold claims.

The potential for abuse is enormous among mold remediation firms. Because there are virtually no state or federal standards covering companies that enter this business, anyone can become a remediation “expert” by virtue of putting a magnetic sign on their truck. Unscrupulous testing and cleanup companies can cause undue concern, charge outrageous fees and trigger unjustified claims.

In response to the financial uncertainty created by the threat of increased claims, out-of-control remediation costs, and the potential for lawsuits, insurers are seeking ways to diversify the scope of coverage offered and decrease the occurrence of mold following a water loss.

As an example, we recently saw insurers in Florida move to control their exposure to mold damage claims by seeking more explicit exclusions regarding mold coverage. While other states have not seen the rash of mold claims experienced in Texas, regulators in the bordering states of Oklahoma and Louisiana have been prompted to hold meetings to discuss the issue.

The industry is anxious to partner with regulators to clarify coverage questions and address excessive or abusive remediation practices. The cooperative efforts being undertaken in these states are positive and should help protect the financial stability of their homeowners insurance markets.

In attempting to resolve the issue in Texas, Commissioner Montemayor sought to relieve the financial burden on insurers without affecting traditional water damage coverage. His order retained coverage for removal of mold, but eliminated coverage for testing, treating, containing or disposing of mold beyond that necessary to repair or replace property that was damaged by water.

While the order is a commendable and creative effort at compromise, it falls short of the comprehensive overhaul that is needed. Even under the new order, insurance companies lack the flexibility to compete against one another under open-market principles.

From the beginning, the National Association of Independent Insurers has advocated for policy language in Texas that would be more uniform with the rest of the country. In every other state, insurers have more freedom to offer consumers a variety of coverage choices.

Competition-based solutions, better defined policy language, increased attention on abusive practices among mold remediators, and consumer education on proper maintenance and mitigation are the factors that will result in a healthier homeowners insurance market in Texas.

What homeowners need to know is that most mold problems are preventable, and prevention should be our industry's primary message to consumers. Insurers need to help consumers become better risk managers and understand that they can avoid most mold problems by checking for signs of water leakage and responding immediately. This is a critical message that is not often heard in the media.

In addition, insurers are addressing mold issues by providing additional claims-handling training to strengthen the knowledge base of claims staff so that they are better able to work with policyholders and remediators.

Ultimately, the mold issue is manageable.

First, we must reduce the hysteria that surrounds the issue so that everyone involved can make decisions based on facts rather than emotion.

Second, we need to foster a regulatory environment where market forces are allowed to generate competitive solutions.

Finally, we should emphasize education and prevention to ensure that mold does not become a larger problem than necessary.

Donald Hanson is Southwestern regional manager for the National Association

of Independent Insurers. Mr. Hanson is based in Austin, Texas.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 14, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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