Post on 17-Dec-2015
Mold and Insurance:
Truth and Consequences
August 2002
Robert P. Hartwig, Ph.D., Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038
Tel: (212) 346-5520 Fax: (212) 732-1916 bobh@iii.org www.iii.org
Presentation OutlineMold, the Consumer & the Insurance Industry
• Overview of Mold Issue• Insurers & The Great Pyramid of Mold
Mold, Hype, Hysteria & Trial LawyersTexas: Ground Zero for Mold Is Florida the Next Texas?
Let the Florida Insurance Consumer Beware!California: Mold’s Going Hollywood
• The Economics of Mold How did we get into this mess? Availability & Affordability Why Homeowners & Their Insurers Can’t Afford Mold Economic Repercussions
• Options & Solutions
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; misinformation
Astounding 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
Great Pyramid of Mold
Source: Insurance Information Institute
Great Pyramid of Mold
Source: Insurance Information Institute
The word “mold” is derived from the old Old Norse word for “fuzzy”
Mold: A Fact of LifeANCIENT ENEMY?
•Existed for at least 400 mil. yrs.•Entire evolution of human species occurred in presence of mold•100,000+ species identified•1,000 found in U.S., e.g.
Stachybotrys, Cladosporium, Penicillium and Aspergillus
•Minimal Growth Requirements Water (humidity/damp OK) Food (any organic substance) Appropriate Temp (wide range) Lack of ventilation
Conclusion Darwin Would Reach: Mold didn’t cause the mold crisis
Stachybotrys chartarum
The Accused: StachybotrysALLEGED 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 Accused: Stachybotrys
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
The Accused: Stachybotrys
Recent CDC Testimony•“..CDC reviewers and an external panel of experts determined there was insufficient evidence of any association between exposure to S. atra or other toxic fungi and idiopathic pulmonary hemosiderosis….”
•Flooding at Turtle Mountain (ND) Indian Reservation in July 2001 residents though mold contamination might be contributing to increase in illness: “An interim report identified several existing hazards unrelated to mold and made recommendations to address those hazards.”
Written statement of Stephen C. Redd, MD, Chief, Air Pollution and Respiratory Health Branch, Centers for Disease Control and Prevention, before the Subcommittees on Oversight and Investigations and Housing and Opportunity, US House of Representatives, July 18, 2002.
Stachybotrys chartarum
HOW DID WE GET HERE?
Texas: Mold’s Ground Zero
HO Loss Ratio Trendin Texas*
59.3%
45.4%50.6%
82.4%
1997 1998 1999 2000
Source: NAIC, Insurance Information Institute
* Excludes loss adjustment expenses
Problems first observed in overall loss trends
$0
$100
$200
$300
$400
$500
$600
$700
$800
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*
Source: Texas Department of Insurance * 2001 (estimate based on Jan. - Mar. data)
Texas: Paid Losses for Water Damage Claims
Sharp increase in water losses were obviously part of the problem.
$0
$50
$100
$150
$200
$250
$300
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*
Av
era
ge
Wa
ter
Lo
ss
pe
r P
olic
y
-20
-10
0
10
20
30
40
50
60
70
% C
ha
ng
e
Average Water Loss per Policy
% Change
Source: Texas Department of Insurance; Insurance Information Institute
* 2001 (estimate based on Jan. - Mar. data)
Texas: Average Water Damage Loss per Policy
TX: Estimated Total Number of Mold Claims
1,050
1,9331,627
2,4724,033
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; Insurance Information Institute estimates.
The number of mold claims rose 1,306% between 2000:I and 2001:IV
TX: Mold Claim Frequency*(# claims per 1,000 policyholders)
1.7
3.22.7
4.1
6.7
11.7
18.4
23.6
0
5
10
15
20
25
00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4
Source: Texas Department of Insurance; Insurance Information Institute estimates.
The frequency of mold claims rose 1,286% between 2000:I and 2001:IV
TX : Average Cost per PolicyholderDue to Mold (per year)
$23.32
$48.57 $64.05
$114.39
$242.31
$404.36$444.35
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3
Source: Texas Department of Insurance; Insurance Information Institute estimates.
Texas “Mold Tax”: Up to $444 per Policyholder per Year
The average cost per policyholder increased 1,805% between 2000:I and 2001:III
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
01:Q1 01:Q2 01:Q3 01:Q4 02:Q1 02: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
TX: Cumulative Total Losses from Mold Claims*
$14$44 $83
$153
$299
$546
$820
$1,007
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4
*Includes loss and loss adjustment expenses.Source: Texas Department of Insurance; Insurance Information Institute estimates.
Mold claim costs rose 560% in 2001 vs. 2000
$ Millions
Texas Accounted for the Vast Majority of New Mold Cases in 2001
Claims Arising Inside
TX70%
Claims Arising
Outside TX 30%
Source: Insurance Information Institute
Is Florida the Next Texas?
A Market Already Under Stress
Overview of Mold Issue - FL• Complex issue, more complicated in FL
FL’s unique hurricane exposure Peninsula in the middle of “hurricane alley” Hurricane Andrew - nearly 200,000 water claims
FL’s unique litigation environment One way attorney fee statute, no need to prove bad faith
– TX law requires proof of bad faith to award attorney fees Contingency risk multipliers Bad Faith statute does not provide for reasonable basis defense
– TX law provides “legitimate dispute” defense
Hurricanes + bad litigation environment + Mold Equals disaster for FL insurance consumers and the industry Equals decreased availability and decreased affordability
FL property insurance rates already among highest
Why TX is Relevant to Florida
• We Can Learn From TX, Avoid a Crisis• Coverage Differences
TX policy covered “seepage” type water losses In essence a home maintenance policy
FL policy covers “sudden & accidental” losses Burst pipe, hurricane, windstorm
• TX Mold Claims and Costs Spike Since 2000 No Scientific ExplanationBefore 2000, mold claims and costs never a problemTX policy pricing did not envision such mold costsTX homeowner rates now include increased mold costs
Up to $444.00 “mold tax” for TX homeowners TX now has highest homeowner prices in the nation!
Why TX is Relevant to Florida• FL Water/Mold Claims & Costs Increasing
No Scientific or Meteorological Explanation No Recent hurricane or windstorm
FL policy pricing does not envision such mold costsFL policy prices will rise if TX mold “claiming behavior”
finds its way to the southeast
• FL Homeowner Rates Already Under StressHurricanesSinkholesMold anyone?
• FL Homeowner Rates 3rd in the Nation3rd highest rates do not include the mold “stressor” Let’s learn from TX before there is a crisis
Average Annual Insured Wind Losses*(Top 10 States, $ Millions)
$1,423.0
$615.0
$196.0$109.0 $77.0 $64.0 $62.0 $61.0 $61.0 $51.0
$154.0
$0
$250
$500
$750
$1,000
$1,250
$1,500
FL TX LA NC MS MA SC AL NY CT AllOther
*Normalized losses adjusted for inflation, housing density, wealth and wind insurance coverage, based on historical data for 100-year period 1900-1999.Source: Tillinghast-Towers Perrin
Louisiana6.8%
N. Carolina
3.8%
Mississippi2.7%
All Other15.7%
Texas 21.4%
Florida49.5%
Distribution of Annual LossesFL can’t afford mold—already
stressed by hurricanes!
10 Costliest Disasters in U.S. History(by insured loss, 2001 $)
$40.2
$19.6$16.3
$5.9$3.2 $2.9 $2.5 $2.4 $2.1 $2.0
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Ter
rori
st A
ttac
k:
Sep
t. 2
001*
Hu
rric
ane
An
dre
w:
Au
gust
1992
Nor
thri
dge
Ear
thq
uak
e:Ja
n.
1994
Hu
rric
ane
Hu
go:
Sep
t. 1
989
Hu
rric
ane
Geo
rges
: S
ept.
1998
Hu
rric
ane
Bet
sy:
Sep
t. 1
965
TS
All
ison
: Ju
ly20
01
Hu
rric
ane
Op
al:
Oct
ober
199
5
Hu
rric
ane
Flo
yd:
Sep
t.19
99
Hu
rric
ane
Inik
i:S
ept.
199
2
$ Billions
*Estimate includes propertyand business interruption losses as well as liability, workers comp, life, aviation and other coverages.Source: Insurance Services Office, Insurance Information Institute.
Insured Losses in Florida ifHurricane Andrew Hit Today
Source: Best’s Review, June 2002 (EQECAT)
$20.3
$36.2
$46.7 $48.2 $46.3$43.5
$0$5
$10$15$20$25$30$35$40$45$50
Andrew'sOriginal
Path
Moved 0.1degreeNorth
Moved 0.2degreesNorth
Moved 0.3degreesNorth
Moved 0.4degreesNorth
Moved 0.5degreesNorth
Insu
red
loss
es, $
Bil
lion
s
•Each 0.1 degree equals about 7 miles
•A path of 0.3 degrees north of Andrew’s original location would create a direct hit on Miami
•Estimates are losses in today’s dollars after application of deductibles.
Insured Losses in Florida ifHurricane Andrew Hit Today
Source: Best’s Review, June 2002 (EQECAT)
$20.3
$36.2
$46.7 $48.2 $46.3$43.5
$0$5
$10$15$20$25$30$35$40$45$50
Andrew'sOriginal
Path
Moved 0.1degreeNorth
Moved 0.2degreesNorth
Moved 0.3degreesNorth
Moved 0.4degreesNorth
Moved 0.5degreesNorth
Insu
red
loss
es, $
Bil
lion
s
•Each 0.1 degree equals about 7 miles
•A path of 0.3 degrees north of Andrew’s original location would create a direct hit on Miami
•Estimates are losses in today’s dollars after application of deductibles.
Estimated New Construction in Miami-Dade County, 1992-2001
$3,095.3
$12,981.8
$3,069.7
$305.5
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
South Miami-Dade All Miami-Dade
($ M
illi
ons)
New Residential Exposure New Commercial Exposure
$3.4 Billion
$16.1 Billion
Source: Best’s Review, June 2002 (International Hurricane Center, Florida International University), Ins. Info. Institute
Huge build-up in exposure in Florida
since 1992
•81% residential
•19% commercial
Summary of FL Mold Problem
• Unless solutions are put into place:FL property insurance rates will skyrocketFL property insurance will be far less availableLiability insurance less available and affordable
• FL Mold losses Historically, not major factor in property insurance costs or
ratesReal mold claims not frequent or largeMajority of mold never covered by insurance
Rather, homeowner maintains home to prevent mold
• FL’s unique hurricane and litigation environmentCombination may create mold crisis worse than TX
• FL must act now
California: Mold Problem is Shaking the State
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
$450
1997 1998 1999 2000 2001
20%
22%
24%
26%
28%
30%
32%
34%
Paid Water Losses ($ 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 Water Claim Cost: 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
Great Pyramid of Mold
Source: Insurance Information Institute
For 399,999,998 out of the past 400 million years “mold” was was not
an issue for litigation.
U.S.: 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
Average Jury Awards1994 vs. 2000
419759
187 333
1,140 1,185
1,744
1,168
1,727
269698
3,482 3,566
6,817
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Overall BusinessNegligence
VehicularLiability*
PremisesLiability
MedicalMalpractice
WrongfulDeath
ProductsLiability
($00
0)
1994 2000
Source: Jury Verdict Research; Insurance Information Institute.
General abuse of tort system has created ideal environment for growth of mold suits
Cost of U.S. Tort System($ Billions)
Source: Tillinghast-Towers Perrin; Insurance Information Institute estimates for 2001/2002 assume tort costs equal to 2% of GDP. 2005 forecasts from Tillinghast.
$129 $130$141 $144 $148
$159 $156 $156$167 $169 $179
$198 $204
$298
$0
$50
$100
$150
$200
$250
$300
$350
90 91 92 93 94 95 96 97 98 99 00 01* 02E* 05F
Tort costs consumed 2.0% of GDP annually on average since 1990, expected to rise to 2.4% of GDP by 2005!
Tort costs equaled $636 per person in 2000!
Expected to rise to $1,000 by 2005
Source: The Austin Chronicle, August 10,2001
Source: The Austin Chronicle, August 10,2001
Some People Are Getting Rich Off Mold
Mold is no joke! There may be billions of mold spores floating around your home or office. You can't catch them with a filter. You can't kill them with insecticide. You can't blow them away with Lysol® spray. They are as elusive and persistent as a dust mite.
But what molds can do to you and your family or coworkers is easily detected: Headache, nausea, dizziness, and respiratory distress. Read the next column to learn a little about SBS (Sick Building Syndrome). For more facts about your environment, look at our Info & Links page.
If you need help now, call or complete and send the form on our contacts page. We are able to handle any size project, and we can start immediately!
ACTUAL ADVERTISEMENT
Mold Plaintiffs Want More than Rebuilding Cost of WTC!
(Billions)
$2.5
$2.7
$6.0
$6.7
$12.0
0 5 10 15
Mold Suits Against HenryPhipps Plaza Apt. Complexin NYCCost to Rebuild WTCComplex
GDP of Ethiopia
Life Insurance Payments for3000 Who Died in WTC
Tropical Storm Allison
Source: Insurance Information Institute
Great Pyramid of Mold
Source: Insurance Information Institute based Nexis search.
Since January 1, 2000, more than 8,000 articles have been published on the subject of “toxic” mold
Increased Media Attention
1,2551,505
1,708
2,922
3,685
0
1,000
2,000
3,000
4,000
1998 1999 2000 2001 2002*
Sources: Insurance Information Institute based on Nexis search.* 2002 figure is estimate based on data through May 17.
More Than 8,000 “Toxic Mold” Articles Since 2000
Source: New York Daily News, September 10, 2001
Source: New York Times Magazine, August 12, 2001
Source: New York Times Magazine, August 12, 2001
Source: New York Daily News, September 10, 2001
Media & Trial Lawyers:Fanning the Flames of Fear
•A contractor, wears a special suit as she checks for mold in the floor of a house in Flour Bluff, TX. Mold is becoming a concern for area homeowners.
•Piece of air conditioning duct board from a house infested with mold. Air conditioning reduces humidity and makes it harder for mold to grow, but increased use of paper products in homes, coupled with sealing of buildings for energy efficiency, encourages mold growth. Air conditioners then help to spread the spores. The family has sued their insurance company for money to clean and rebuild the house.
Source: Corpus Christi Caller Times
•
•This woman blames mold growing in her Flour Bluff, TX, house for some of her family's ailments. A suit against their insurance company goes to trial Nov. 5.
•A family believes the mold in their home was causing nosebleeds and respiratory problems for their children. They now live in a hotel room.
Media & Trial Lawyers:Fanning the Flames of Fear
Source: Corpus Christi Caller Times
2001: Increased Media AttentionIn the Papers a Year 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
2002: Financial & Market Consequences
Look at What’s in the Papers Today: “Mold Claims Soar"
Miami Herald, July 29, 2002 "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 “Allstate’s Net Income Drops 15 Percent”
Wall Street Journal, April 18, 2002 “Oklahoma Home Insurers Limiting Fungus Coverage”
The Oklahoman, April 2, 2002 “Prices for Auto and Home Insurance are Rising Sharply”
New York Times, March 26, 2002 “Some Insurers Ending Coverage for Home Builders”
Minneapolis Star Tribune, February 16, 2002
“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
Mold:Gone Hollywood
309
191
97
0
50
100
150
200
250
300
350
Erin Brockovich Melinda Ballard Ed McMahon
Sources:Insurance Information Institute based on Nexis search.
NUMBER OF ARTICLES CITING MOLD AND…
Trial Lawyers:Fanning the Flames of Fear
•A contractor, wears a special suit as she checks for mold in the floor of a house in Flour Bluff, TX. Mold is becoming a concern for area homeowners.
•Piece of air conditioning duct board from a house infested with mold. Air conditioning reduces humidity and makes it harder for mold to grow, but increased use of paper products in homes, coupled with sealing of buildings for energy efficiency, encourages mold growth. Air conditioners then help to spread the spores. The family has sued their insurance company for money to clean and rebuild the house.
Source: Corpus Christi Caller Times
•
•This woman blames mold growing in her Flour Bluff, TX, house for some of her family's ailments. A suit against their insurance company goes to trial Nov. 5.
•A family believes the mold in their home was causing nosebleeds and respiratory problems for their children. They now live in a hotel room.
Trial Lawyers:Fanning the Flames of Fear
Source: Corpus Christi Caller Times
Fanning the Flames of Fear
A man points to mold growth on the tiles of his bathroom. Mold is able to grow as long as it has a cellulose-based food source and water.
Source: Corpus Christi Caller Times
This Still Works!
Great Pyramid of Mold
Source: Insurance Information Institute
THE ECONOMICS OF MOLD:
WHAT WILL MOLD COST POLICYHOLDERS & THE INSURANCE INDUSTRY ?
Mushrooming Costs Have Severe Consequences on Price, Availability
• Enormous ALAE component (up to 100% of claim)• HO Frequency/severity up by 1,300% to 1,800+%• TX Mold costs totaled $854 million in 2001
$444 ‘mold tax’ per homeowner in state
• Billions across all states, lines of insurance• Implications for Affordability & Availability• 1% national claim frequency = $18 billion in costs• Homebuilding (single-family & multi-unit) affected• Real estate sales have suffered
Possibilities for Abuse
• Abusive practices by mold remediation servicesUnnecessary work, qualifications, improper removal
• Claim misrepresentation by policyholdersMold excluded; incentive to misrepresent nature of water damage
• Unscrupulous public adjustersEncourage policyholders to allow situation to deteriorate
• Testing servicesOver-testing; Gaming the results
• Sales tacticsUse of fear and misinformation
Impacts on Affordability and Availability
Real Consequences for Homeowners & Housing Markets
Average Expenditures on Homeowners Insurance: FL vs. US
420 418440
455481 488
657650
611
562543
366
$350
$400
$450
$500
$550
$600
$650
$700
1991
1995
1996
1997
1998
1999
Source: NAIC, Insurance Information Institute
Average HO expenditures in Florida have risen relative to the US because of CAT risk—mold will create additional unnecessary stressor
States With Highest HO-3Insurance Premiums
$879
$714 $657$606
$487
$0
$200
$400
$600
$800
$1,000
Expenditures/Rank
Texas Louisiana Florida Hawaii US
Source: Insurance Information Institute from NAIC Data, 1999.
1 2 3 4
FL is 3rd without the mold “stressor”
States with Highest Premium/Income Ratios*
1.72%
1.41%1.32% 1.25% 1.24%
0.86%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
TX LA MS OK FL US
Pre
miu
m a
s %
of
Inco
me
*As a % of the median family of 4’s income, 1998. Source: NAIC, Insurance Information Institute
HO insurance is very affordable, consuming less than 0.9% of the
typical family’s income nationally, but 1.24% in FL and climbing! Can
we afford another price stressor?
Mold-Induced Rate Increases Will Impact Affordability in FL*
1.72%
2.40%2.60%
0.86%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
TX TX--40% Hike TX--50% Hike US
Pre
miu
m a
s %
of
Inco
me
*As a % of the median family of 4’s income. Source: NAIC, Insurance Information Institute
Mold costs could push HO insurance costs to 2.5%+ of the typical
family’s income in TX. What will happen in FL?
Mold-Induced Rate Increases Will Impact Affordability in FL*
1.36%
1.82% 1.83% 1.88% 1.86% 1.83%
0.86%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1991 1995 1996 1997 1998 1999 US
Pre
miu
m a
s %
of
Inco
me
*As a % of the median family of 4’s income. Source: NAIC, Insurance Information Institute
Mold costs could push HO insurance costs to 2.5+% of the typical
family’s income in FL
Consumers Can’t Afford Mold, Neither Can Insurers
P/C Net Income After Taxes1993-2001 ($ Millions)
$19,316
$10,870
$20,598
$24,404
$36,819
$30,773
$21,865$20,223
-$7,921-$10,000
-$5,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
1993 1994 1995 1996 1997 1998 1999 2000 2001
Sources: A.M. Best, ISO, Insurance Information Institute.
2001 was the first year ever with a full year net loss, mold was a factor.
-$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
illi
ons
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.
HO Insurance Costs & Cost of Home Repairs
2.2%
5.3%
1.5%
3.4%4.1%
2.4%2.8%
7.0%
8.0%
Overall CPI Home Repairs HO Insurance*
199920002001
Source: US Department of Commerce, Insurance Information Institute
*HO insurance cost increase for 2001 is III estimate.
Economic Repercussions
New Private Housing Starts(Millions of Units)
1.19
1.01
1.20
1.29
1.461.35
1.48 1.47
1.62 1.67 1.591.60 1.61 1.58
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
90 91 92 93 94 95 96 97 98 99 00 01 02* 03*
Source: US Department of Commerce; Insurance Information Institute*Projections from Blue Chip Economic Indicators.
New Private Housing Starts U.S. economy highly dependent on new home construction as
business investment remains weak
States with Most New Homes Built*, 2000
Source: National Association of Homebuilders, Insurance Information Institute
* Single family units
(000)
108.3 104.999.9
59.248.2
TX FL CA NC AZ
New Private Housing Starts States with biggest mold
problems highly dependent on home construction sector
Homebuilding is an Important Part of the Economy in Most States
Jobs
Generated* Wages
Tax/Fee
Revenue**
1,000 Single-Family Homes 2,448 $79.4 Mill $42.5 Mill
1,000 Multi-Family Homes 1,030 $33.5 Mill $17.8 Mill
Source: National Association of Homebuilders, Testimony before the House Subcommittees on Housing and Community Opportunity and Oversight and Investigations, July 18, 2002.
*Construction and related industries.**Federal, state and local.
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
Billions in Tax Revenue Depend on Construction of Single-Family Homes
Source: National Association of Homebuilders, Insurance Information Institute
* Single family units, based on year 2000 construction figures
$4.6
$4.5
$4.2
Texas Florida California
Mold Puts Tax Revs. at Risk
Construction of single-family homes in states with biggest mold problems supports $4 billion - $5 billion in tax and
fee revenue to local, state and federal government.
$ Billions
Homeownership Rates,1985 to 2001
* Third QuarterSource: U.S. Census Bureau
63.9%63.9% 64.1%64.5%
64.0%
64.7%
65.4%65.7%
66.3%66.8%
67.2%
68.1%
1985 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*
Public Policy Question: Should mold claims filed by a tiny minority be
allowed to dash the homeownership dreams of millions of low/moderate
income Americans?
Options & Solutions
Options are Limited, Time is Running Out
1. Include coverage and price it into policies2. Add sub-limits; endorsements could increase
coverage (majority of mold claims may then be valued at sub-limit, increasing costs to consumers if sub-limits are too high)
3. Exclude all coverage in standard policy, offer only as endorsement
4. Tighten contract/underwriting (make “sudden & accidental” more explicit; prior water damage claims; Note: not a FL option - unique litigation environment)
5. Absolute mold exclusion6. Price controls7. Federal Mold Pool (oh, the irony!)8. Walk away from business (can’t offer product at loss)
ISO Mold Exclusions
ME
NH
MA
CT
PA
WVVA
NC
LA
TX
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
SDWI
IN
OH
MT
CA
NV
UT
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