Upload
others
View
0
Download
0
Embed Size (px)
Citation preview
Mold and Insurance:
Is the Worst Behind Us?
Casualty Actuarial SocietySeminar on Ratemaking
San Antonio, TX
March 27, 2003
Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief EconomistInsurance Information Institute ♦ 110 William Street ♦ New York, NY 10038
Tel: (212) 346-5520 ♦ Fax: (212) 732-1916 ♦ [email protected] ♦ www.iii.org
Presentation Outline
Mold, the Consumer & the Insurance Industry• Overview of Mold Issue• A Brief History of Mold & Insurance
Experience in Texas & CaliforniaInfluence of Legal Environment & Profiteering
• Media Perception of the Mold Issue• The Economics Of Mold• Commercial Lines & Mold• Regulatory/Legislative Considerations• Q&A
Overview of Mold Issue• Complex issue involving
Homeowners—fear of mold; hysteria in some areas
Businesses & Workers—property, construction, WC & liability issues
Science—taking a back seat to fact; misinformationAstounding array of ailments attributed to mold
Trial Lawyers—profiting from fear and hype over mold
Remediators—profiteering?
Media—media attention increases as mold claims increase
Regulators—struggling with the issue; options limited
A BRIEF HISTORY OF MOLD & THE INSURANCE INDUSTRY
Great Pyramid of Mold
Hysteria
Toxic Mold?
Trial Lawyers
Great Pyramid of Mold
Source: Insurance Information Institute
HOW DID WE GET HERE & WHERE ARE WE GOING?
Texas was Mold’s Ground Zero, but Effects Have Spread
TX: Estimated Total Number of Mold Claims
1,0501,933
1,6272,472
4,033
7,145
11,318
14,706
0
3,000
6,000
9,000
12,000
15,000
00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4
Source: Texas Department of Insurance.
The number of mold claims rose 1,306% between 2000:I and 2001:IV
TX: Average Cost Per Mold Claim*
$13,719$15,402
$24,024
$28,061
$36,213 $34,538
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2
*Includes loss and loss adjustment expenses.Source: Texas Department of Insurance; Insurance Information Institute estimates.
The average cost of mold claims rose number of mold claims rose 152% between
2000:I and 2001:II
$0
$50
$100
$150
$200
$250
Jan-0
1Feb
-01Mar-
01Apr-
01May
-01Ju
n-01
Jul-0
1Aug
-01Sep
-01Oct-
01Nov
-01Dec
-01Ja
n-02
Feb-02
Mar-02
Apr-02
May-02
Jun-0
2Ju
l-02
Aug-02
Sep-02
Oct-02
Wat
er D
amag
e Pa
id L
osse
s * ($
Mill
ions
)
0
5000
10000
15000
20000
25000
30000
Cla
im C
ount
Paid LossesClaim Count
Source: Texas Department of Insurance; Insurance Information Institute
* Data are for TDI Cause 61: Discharge – Other Damage. Not all claims in cause 61 are mold and mold claims may also arise from other (non-water) causes of loss.
Texas: Mold Losses/Claims Are Finally Moderating*
99.4%93.3%
65.0%
100.6%
70.5%
89.7%
58.5%
43.7%49.1%
77.5%
93.5%
44.7%
89.6%
67.7%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
89 90 91 92 93 94 95 96 97 98 99 00 01 02*
Prem
ium
per
Pol
icy
0%
20%
40%
60%
80%
100%
120%
Paid
Los
s R
atio
Written Premium per Policy
Paid Loss Ratio
*Through October 2002.
Source: Texas Department of Insurance; Insurance Information Institute
Texas HO: Paid Loss Ratio Up Sharply, Premiums Haven’t Kept Pace
Paid loss ratio is up 90.1% since 1999 while average premium is up just 40.1%
$69
$186
$88 $86 $88$114 $128 $127 $123 $125 $121
$170
$379
$728
12.5%
33.9%
20.7% 20.7%17.6%
25.1%
31.0%27.0%
24.3%
12.4%
61.0%
30.8%
43.4%
18.0%
$0
$100
$200
$300
$400
$500
$600
$700
$800
89 90 91 92 93 94 95 96 97 98 99 00 01 02*
Avg
. Wat
er L
oss
per P
olic
y
0%
10%
20%
30%
40%
50%
60%
70%
All
Wat
er D
am a
s %
Tot
al L
osse
s
All Water Damage per Policy
All Water Dam as % Total Losses
*Through October 2002.
Source: Texas Department of Insurance; Insurance Information Institute
Texas HO: Per Policy WaterLosses Have Skyrocketed
Water damage losses per policy are up 328%
between 2000 and 2002*
0%
10%
20%
30%
40%
50%
60%
70%
89 90 91 92 93 94 95 96 97 98 99 00 01 02*
Water as % Total # LossesWater as % Total $ Losses
Texas HO: Water Loss and Claim Share Up Sharply
*Through October 2002.
Source: Texas Department of Insurance; Insurance Information Institute
California: Surging Water Claim Frequency and Costs:
Symptom of Growing Mold Problem
$206.1
$276.5$286.6
$383.7
$430.6
24%
29%
27%
32%
31%
$100
$150
$200
$250
$300
$350
$400
$450
1997 1998 1999 2000 200120%
22%
24%
26%
28%
30%
32%
34%
Paid Water Losses ($ Mill) Water Claims as % of All Homeowners Claims
Source: Insurance Information Network of California; Insurance Information Institute
•Water losses paid rose 109% from 1997 to 2001 and 50% since 1999
•Water claims accounted for less than 1/4 of all HO claims in 1997, now they account for nearly 1/3.
California may be in a drought, but homeowners say they’re drowning
Sharply Rising Average WaterClaim Cost in CA: Mold Symptom
$2,537 $2,631
$3,339
$3,719
$4,730
$2,000
$3,000
$4,000
$5,000
1997 1998 1999 2000 2001
Source: Insurance Information Institute based on data from the Insurance Information Network of California;
The cost of the average water loss in CA surged 27% in 2001 and 80% since 1998
California: Surging Water Claim Frequency and Costs:
Symptom of Growing Mold Problem
$206.1
$276.5$286.6
$383.7
$430.6
24%
29%
27%
32%
31%
$100
$150
$200
$250
$300
$350
$400
$450
1997 1998 1999 2000 200120%
22%
24%
26%
28%
30%
32%
34%
Paid Water Losses ($ Mill) Water Claims as % of All Homeowners Claims
Source: Insurance Information Network of California; Insurance Information Institute
•Water losses paid rose 109% from 1997 to 2001 and 50% since 1999
•Water claims accounted for less than 1/4 of all HO claims in 1997, now they account for nearly 1/3.
California may be in a drought, but homeowners say they’re drowning
ISO Mold Exclusions
ME
NH
MACT
PA
WVVA
NC
LATX
OK
NE
ND
MN
MI
IL
IA
ID
WA
OR
AZ
HI
NJ
RI
MDDE
AL
VT
NY
DC
SC
GA
TN
AL
FL
MS
ARNM
KYMOKS
SD WI
INOH
MT
CA
NVUT
WY
CO
Exclusion Approved
No Approved Exclusion
Homeowners policy mold exclusions approved by insurance departments in more than 30 states + DC*
*As of July 29, 2002.
Source: Insurance Services Office
MS
Wide Variety of Illnesses Alleged to be the Result of Mold Exposure
ALLEGED ILL-EFFECTS•Burning eyes•Headache•Nausea•Nose bleeds•Allergic Reactions•Asthma•Exhaustion•Sinus infections•Cognitive disorders•Pulmonary hemorrhage•Liver damage•Central nervous system damage•Brain damage•Cancer•Death
Stachybotrys chartarum
The Science Doesn’t Support Those Allegations
List of Known Maladies•“There are very few case reports that toxic molds inside homes can cause unique or rare health conditions…” “The common health concerns from molds include hay-fever like allergic symptoms.”
Centers for Disease Control and Prevention
Stachybotrys chartarum
Litigiousness in US Society Compounded the Problem
Documented Toxic Mold SuitsFormer
Owners of Sold Homes
10%Bad Faith
Against Insurers
50%Builder for
Construction Defects
20%
HO Associations
for Improper Maintenance
20% Source: www.toxlaw.com; Guy Carpenter
1,000 Cases
2,000 Cases
5,000 Cases
2,000 Cases
As Did Countless Profiteers…
Source: The Austin Chronicle, August 10,2001
The Media & Mold:A Marriage Made in Heaven
Source: Insurance Information Institute based Nexis search.
Since January 1, 2000, more than 10,000 articles have been published on the subject of “toxic” mold
Media Attention on the Mold Issue Peaked in 2002
1,2551,505
1,708
2,922
3,282
2,838
0
1,000
2,000
3,000
4,000
1998 1999 2000 2001 2002 2003*
Sources: Insurance Information Institute based on Nexis search.* Estimate.
More Than 10,000 “Toxic Mold” Articles Since 2000
2001: Increased Media AttentionIn the Papers Two Years Ago
“Haunted by Mold”New York Times Magazine, August 12, 2001
“Beware: Toxic Mold”Time Magazine, July 2, 2001
“Insurers, Builders Criticized Over Mold”Austin American Statesman, June 27, 2001
“Mold Problems Spur Hearings Across Texas”Corpus Christi Caller Times, June 17, 2001
“Insurers Blanch at Proliferation of Mold Claims”Wall Street Journal, June 3, 2001
“Insurer Must Pay Family $32 Million”San Antonio Express-News, June 11, 2001
Source: New York Daily News, September 10, 2001
Source: New York Times Magazine, August 12, 2001
“Heeeeeeere’s Stachy…”Mold Goes Hollywood
•Ed McMahon filed $20 million suit against insurer & mold remediation contractor•Ed only gave away $10 million in sweepstakes•Says mold sickened him, his wife and staff•Says mold killed Muffin the family dog•Alleges breach of contract, negligence and intentional infliction of emotional distress•Nearly 100 articles between April 10 and May 17, 2002!
“Ed McMahon Sues Over Toxic Mold Invasion,” --USA Today, April 11, 2002
2002/3: Financial & Market ConsequencesIn the Papers Over the Past Year
“The Turmoil Over Mold in Buildings”New York Times, March 23, 2003
“Landlords Add Mold Clauses to Apartment Leases"Wall Street Journal, March 18, 2003
“Insurers in Kansas Won’t Cover Mold"Kansas City Business Journal, February 21, 2003
“More Limited Form of Mold Insurance Emerges"Wall Street Journal, February 5, 2003
"State Farm Halts New Policies [in FL]"Tampa Tribune, June 29, 2002
“Hit With Big Losses, Insurers Put Squeeze on Homeowners”Wall Street Journal, May 14, 2002
“Can Toxic Mold Spoil a Stock Offering?”Business Week, April 29, 2002
“Apartment Owners Face Growing Liability”Wall Street Journal, April 24, 2002
“State Farm Won’t Write New Homeowners Policies [in CA]”Los Angeles Times, April 23, 2002
“Oklahoma Home Insurers Limiting Fungus Coverage”The Oklahoman, April 2, 2002
“Some Insurers Ending Coverage for Home Builders”Minneapolis Star Tribune, February 16, 2002
Great Pyramid of Mold
Source: Insurance Information Institute
THE ECONOMICS OF MOLD:
WHAT WILL MOLD COST POLICYHOLDERS & THE INSURANCE INDUSTRY ?
Impacts on Affordabilityand Availability
Real Consequences for Homeowners & Housing Markets
States With Highest HO-3Insurance Premiums
$879
$714 $657$606
$487
$0
$200
$400
$600
$800
$1,000
Expenditures/Rank
Texas Louisiana Florida Hawaii US
Source: Insurance Information Institute from NAIC Data, 1999.
1 2 3 4
FL is 3rd without the mold “stressor”
States with Highest Premium/Income Ratios*
1.72%
1.41%1.32% 1.25% 1.24%
0.86%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
TX LA MS OK FL US
Prem
ium
as
% o
f Inc
ome
*As a % of the median family of 4’s income, 1998.Source: NAIC, Insurance Information Institute
HO insurance is very affordable, consuming less than 0.9% of the
typical family’s income nationally, but 1.24% in FL and climbing! Can
we afford another price stressor?
Mold-Induced Rate Increases Will Impact Affordability*
1.72%
2.40%2.60%
0.86%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
TX TX--40% Hike TX--50% Hike US
Prem
ium
as %
of I
ncom
e
*As a % of the median family of 4’s income.Source: NAIC, Insurance Information Institute
Mold costs could push HO insurance costs to 2.5%+ of the typical
family’s income in TX.
Consumers Can’t Afford Mold, Neither Can Insurers
P/C Net Income After Taxes1991-2002E ($ Millions)
$14,178
$5,840
$19,316
$10,870
$20,598$24,404
$36,819
$30,773
$21,865$20,559
-$6,970
$12,419
-$10,000
-$5,000
$0
$5,000
$10,000
$15,000$20,000
$25,000
$30,000
$35,000
$40,000
91 92 93 94 95 96 97 98 99 00 01 02**I.I.I. estimate based on first 9 months of 2002 data.Sources: A.M. Best, ISO, Insurance Information Institute.
2001 was the first year ever with a full year net loss
2002 9-Month ROE = 4.4%
-$2.2-$2.8
-$4.0-$2.9
-$5.4
-$0.3
-$2.6 -$2.4-$3.6
-$8.9
-$6.5
-$11.5($12.0)
($10.0)
($8.0)
($6.0)
($4.0)
($2.0)
$0.019
91
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
E
2002
F
Underwriting Loss in HO Insurance, 1991-2002F
Source: Insurance Information Institute. A.M. Best
$ B
illio
ns
Underwriting losses in homeowners insurance from 2000 to 2002 alone are
estimated at $19.0 billion, 14.5% above the $20.3 billion in 9/11 property losses. Mold
was not the only factor in these losses.
States with Most New Homes Built*, 2000
Source: National Association of Homebuilders, Insurance Information Institute
* Single family units
(000)
108.3 104.9 99.9
59.248.2
TX FL CA NC AZ
New Private Housing StartsStates with biggest mold
problems highly dependent on home construction sector
Number of People Employed in Construction of Single-Family Homes
Source: National Association of Homebuilders, Insurance Information Institute
* Single family units, based on year 2000 construction figures
265,118
256,795
244,555
Texas Florida California
Mold Puts Jobs at Risk
Construction of single-family homes supports about one-
quarter million jobs in states with the biggest mold problems
Billions in Wages Depend on Construction of Single-Family Homes
Source: National Association of Homebuilders, Insurance Information Institute
* Single family units, based on year 2000 construction figures
$8.6
$8.3
$7.9
Texas Florida California
Mold Puts Wages at Risk
Construction of single-family homes supports $8 billion - $9 billion in wages in construction and related
industries in states with biggest mold problems.
$ Billions
MOLD & COMMERCIAL INSURANCE
Construction Defect Litigation Destroying CA Condo Market
$1.87
$2.95
$1.00
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
1998 2000
Source: ISO, Insurance Information Institute
Condo construction in parts of CA has come to a virtual stop.
Insurer costs rose 58% in just 2 years!
Ratio of Losses Paid Out to Premiums Taken In
“Right-to-Cure” laws now in 5
states: AZ, CA, NV, TX, WA
16 considering such laws.
Where are the NextBattlefields for Mold?
• Homeowners issue probably crested in 2002• Migration to commercial area affects many lines:
Commercial Property Commercial LiabilityProducts Liability Builders Risk/Construction DefectsWorkers Comp…(very little)
• Hot Spots:Apartments/Condos/Co-ops Office StructuresSchools Municipal BuildingsCars? (GM case in NC)
• Trend toward class actions since science doesn’t support massive individual non-economic damages
Much more lucrative for trial lawyers to form classSource: Insurance Information Institute.
TEXAS INSURANCE REFORM:
IS MORE REGULATION THE ANSWER?
Texas Insurers Drowning in a Sea of New Regulation in 2003
Number of House/Senate Bills Introduced that Could Impact Insurers (as of Jan. 31)
16
108
6 6 6 5 52 1 1
0
5
10
15
20
Propert
y
Insu
rance
Scorin
gReg
ulation
AutoLice
nsing
Misc
Ratemaking
WC
Privacy
Tort Refo
rm
TWIA
•At least 66 pieces of legislation have been introduced, most of which would adversely impact insurers
258
280 287 290
313299
277 271 272 273 276263
240220
204194
181162
151138
128 127
0
50
100
150
200
250
300
350
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Source: Texas Coalition for Affordable Insurance Solutions from A.M. Best data; Insurance Information Institute
Number of HomeownersInsurers in Texas
The number of insurers writing HO coverage in Texas
has been declining steadily.
Road to Reform:A Lot Like the Road to Baghdad
• It is a myth that insurers in TX are “unregulated”E.g., solvency, forms…
• Solution to TX insurance problems will not be be found in new, expansive, and expensive regulations as proposed
• Need market-based solutions that work to attract/retain insurers and fresh capital, not drive them away
• Issue needs to be de-politicized• Prior approval will increase insurer and TDI expenses
and increase politicization of insurance regulation• Prior approval increases lag between recognition of
change intrend and implentation of rate change• Insurers need access to modern, fair and efficient
underwriting tools such as credit
1.07
1.53
1.35
1.14
0.990.94
0.99
0.83 0.810.74 0.75
0.4
0.6
0.8
1.0
1.2
1.4
1.6
NoScore
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Score Range
Avg
. Rel
ativ
e L
oss
Rat
ioTexas Auto: Relative Loss Ratio (by Credit Score Decile, Total Market)*
*Each decile contains approximately 15,300 policies.Includes standard and non-standard policyholders.
Interpretation:
Those with poorest credit scores generated losses more than double that of those with the best scores
Source: University of Texas, Bureau of Business Research, March 2003.
1st Decile = Lowest Credit Scores10th Decile = Highest Credit Scores.
Extremely strong statistical evidence linking credit score with loss/claim outcomes:•Credit score & likelihood of positive claim (p<.0001)•Size of loss related to credit score (p<.0001)•Correlation between relative loss ratio and credit score (r = .95)
1.07
1.53
1.28
1.061.00 0.99
0.88 0.840.78
0.72 0.76
0.4
0.6
0.8
1.0
1.2
1.4
1.6
NoScore
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Score Range
Avg
. Rel
ativ
e L
oss
Rat
ioTexas Auto: Relative Loss Ratio
(by Credit Score Decile, Standard Market)
Interpretation:
Those with poorest credit scores generated relative losses more than
double that of those with the best scores*
*Correlation between relative loss ratio and credit score is .95 and statistically significant.Source: University of Texas, Bureau of Business Research, March 2003.
1st Decile = Lowest Credit Scores
10th Decile = Highest Credit Scores.
Average Loss = $695
$668
$918
$846
$791
$707 $703$681
$631
$584 $568 $558
$500
$600
$700
$800
$900
$1,000
NoScore
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Score Range
Avg
. Inc
urre
d L
oss
per
Polic
yTexas Auto: Average Loss per Policy
(by Credit Score Decile, Total Market)
Interpretation:
Those with poorest credit scores generated incurred losses 65% higher
those with the best scores
Source: University of Texas, Bureau of Business Research, March 2003.
1st Decile = Lowest Credit Scores
10th Decile = Highest Credit Scores.
9
12 12
11 11
10 10 10 10
9 9
6
8
10
12
14
NoScore
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Score Range
% W
ith R
elat
ive
Los
s R
atio
>1.
0Texas Auto: % Insureds with Relative Loss Ratio Above 1.0
(by Credit Score Decile, Total Market)
Interpretation:
Insureds with poorest credit scores are 33% more likely to have relative
loss ratios greater than 1.0
(indicates higher frequency of claims)
Source: University of Texas, Bureau of Business Research, March 2003.
1st Decile = Lowest Credit Scores
10th Decile = Highest Credit Scores.